Small business owners face lots of challenges on a daily basis but perhaps the most important one is limited funds. Having that extra cash at the tip of your fingers can be used to buy inventory, hire new employees, initiate a marketing strategy or campaign, or even open up a new physical location. It all sounds great, right? but the nature of the loan you receive depends heavily on the financial stability of your business and especially your business credit score. You need to present your financial statements, tax proofs, business registration name and number, and other documents to establish the credibility of your business and yourself as a business owner. That’s why it’s a good idea to prepare everything beforehand. Here are some tips on how to prepare for your small business loan application.
Pay attention to your business credit score
Having a good business credit score is important. Most business owners don’t pay much attention to it. They think it won’t impact their loan applications, but it actually does. As a small business owner, you should take steps to regularly check and maintain your business credit score. This way, you will have a better chance of securing a loan in the future. If your credit score is low, follow these simple and effective steps to improve it.
Create a solid business plan
Having a firm business plan is crucial to your company because it reflects your business goals, purposes and how you plan on achieving them. It provides the ways in which your small business operates and the amount of funds you need to expand.
It also gives lenders a better understanding of the current financial health of your business, how your business plans on repaying the loan and if you require a secured or unsecured loan.
Choose the right lender
When searching for a small business loan, do not choose the first lender that you come across. Shop around a little. Do your market research and conduct a thorough analysis to see what options are available for you. Keep in mind that a good business loan will provide you with lots of repayment options and offers you a customized loan that is ideal for your business’ needs.
Consider these questions lenders will ask you on your application
Now that you have chosen a lender and want to move forward, it’s their turn to ask you questions. If your application process is seamless, you will be prepared to provide any type of information that lenders require. Here are some of the most common questions they ask:
Who are you?
This is the introductory step where lenders want to get to know you and your business better. Make sure you have a valid form of ID on you. Also, be prepared to provide any documents that clearly state your personal background.
What is your business? What do you do/provide?
As an entrepreneur, you should have a good understanding of your business and its product or service. You must be able to introduce your small business to lenders and convince them how getting a loan at this point will benefit you in the long-run.
Who are your customers or clients?
Most lenders want to get a sense of who you cater to, do business with, and what sort of customers you have. They may also want to know if your clients pay on time. To prepare for this, you can put together a list of your customers with all of their information to prove that you have a strong client base.
How is your current financial standing?
Depending on the type of loan you apply for, lenders will require different documents as proof that you’re in good financial standing and to make sure that they will receive their money back. So be sure to have your bank statements, balance sheet, income statement, and tax returns.
Have you borrowed in the past and have you been responsible?
Your personal and business credit scores prove your eligibility for a business loan. You can check your credit score on the Loop for free.
Ultimately, if you are a small business owner and want to apply for a business loan, keep the above steps in mind. It will give lenders a better understanding of the type of loan you are looking for and whether or not you are in good financial standing to repay it on time.