Every business journey begins with a clear-cut vision. After developing business goals and objectives, picking the right niche, forming a stellar team, and a surefire plan, your business requires one more thing – finance.
These business targets and goals remain an unattainable dream if you don’t have the financial capabilities to jumpstart the business and develop and grow it. Hence, obtaining a business loan is an excellent option – all the more so if your business lacks funds.
What is a business loan?
A business loan is generally an aggregate amount of cash a lender offers. And thus, in return for this cash, a business owner must repay the borrowed money at a decided interest rate and fees over a specified time. A plethora of different business loans exist. A few of these include term loans, microloans, invoice financing, invoice factoring, working capital loans, and business lines of credit.
A business loan allows organizations to run their operations swimmingly and smoothen the cash flow curve. It also enables businesses to buy new equipment and meet everyday expenses.
Unfortunately, procuring a business loan is a challenge in itself. Steering through the entire process and meeting the lending requirements imposed by financial institutions can be intimidating. Nonetheless, the good news is that you can increase the chances of securing the loan from your desired lender.
Here’s a handy guide that can walk you through the lending process and help you obtain the loan to fuel your business:
Showcase thorough financial knowledge
While it isn’t necessary to be a financial expert, you must know the intricacies of business finance and be able to elucidate financial reports. Not only this, but you must also present collateral information alongside business and personal credit scores. If you’re still wondering, “how do business loans work?” it’s crucial to gain a rudimentary understanding of the lending process.
Unfortunately, people who lack financial knowledge or have a pressing need for money to survive the challenging period of their business fall victim to predatory lenders. However, with a firm grasp of financial information and the technicalities of business loans, your business can avoid such lenders.
Remember, a business loan is critical for getting the business off the ground or remaining sure-footed through rough patches. But it’s equally essential, if not more, to obtain this loan from the right source. Therefore, ponder over questions such as, will your business be able to pay it back? And what genuinely does the fine print implies? Also, ensure to read and be quite clear about the terms and conditions of business loans.
Create a solid business plan
A written business plan is a fail-safe method to earn the lenders’ trust and provide you with financing. The more transparent and accurate a business plan is, the more a lender will have confidence in your venture. Thus, the more explicit the details, the better the results.
While there exist multiple templates for business plans, the most crucial factor is demonstrating your knowledge of market trends, industry patterns, and business operations. Clearly state the rationale for borrowing a lump sum of capital and how your business can benefit from this amount.
Additionally, provide a comprehensive budget breakdown – show how you intend to spend each loan section. Get your finances right and explain the financial essentials and other intricacies. Lastly, keep the lenders in the loop by communicating the businesses with which you plan to spend the borrowed money.
Be upfront about the financial health
If your business has been performing well for at least a year, come up with the cash flow evidence when preparing to apply for the loan. Mention updates on cash flow projections and financial details conducted by a trained financial expert to substantiate the reasons for getting funding.
Devise a two-year cash flow prediction – how the business will likely function in the coming 12-24 months to win over the lender’s trust. However, try to be realistic – don’t exaggerate the calculations to forecast future business outcomes.
Likewise, always maintain your business daily balance at the highest possible amount. That’s because, in some cases, banks or other lenders approve the financing contingent on the business’s daily balance instead of business income. This way, you can assure the lenders of the source of loan repayments. That said, communicate any present or previous matters that could adversely influence your application for a business loan. Of course, not every business has an ideal finance history or credit score.
Choose the right lender
There exist numerous lender options from which you can obtain a business loan. Choosing the correct one increases the likelihood of growing your business. One of the most common types of lenders is online lenders.
These lenders offer a diverse range of business loans, a few of which encompass merchant cash advances, microloans, and term loans. In addition, online lenders often have lenient eligibility requirements to get the application for a loan approved. Thus, you can have better chances of attaining the business loan even if you don’t have a not-so-perfect credit score.
Another common type is traditional banks. Since you might already have an established relationship with your bank, they can significantly help your business. However, the main downside of acquiring a business loan from banks is the prolonged wait times. According to the 2019 Small Business Credit report, most applicants felt frustrated with these wait times.
Establish solid reasons for a business loan
Before a lender entrusts you with a considerable sum of cash, they will need to know why your business wants it and how you plan on spending it. And undoubtedly, it’s a genuine concern – how you invest different portions of the loan will impact your ability to repay it.
One of the reasons that can strengthen the application for a business loan is purchasing new equipment and devices. In this case, the type of loan offered is an equipment loan which assists the business owners in buying the latest machinery and modern office equipment. However, if a business owner fails to pay the borrowed money back, the lender has the right to seize the equipment.
Alternatively, a business credit card is an excellent option if you need a business loan to support your startup. Other grounds to seek business loans for a business just launched include creating a cash buffer for potential business pitfalls or managing everyday business operations.
Contingent upon the nature of the business – established or recently launched, a myriad of ways exist to procure a business loan. All in all, how business owners present themselves and exhibit the confidence to expand their business plays an integral role in increasing the likelihood of attaining a business loan.
Therefore, conduct exhaustive research and learn the ins and outs of your business. Examine the financial well-being and engage co-applicants if you lack collateral or the credit report isn’t strong enough.
Also, come up with a solid business plan and be sure to amend it according to the latest market trends and business conditions. This way, you will be well on your way to applying for a business loan, which could be the chief driver to lead your business to unparalleled heights.