If you’re an entrepreneur looking to start your own business, then you will most likely need to apply for a business loan. Few people are financially capable of starting a company on their own. However, before you begin approaching various lenders about a potential business loan, there are a few things that you should know first. The following are five important things that you should know before applying for a business loan:
- You need a strong business plan – Lenders won’t approve a loan to anyone unless they can convince them that they will be able to make the money needed to pay back the loan. If you don’t have a business plan, then you’re going to have a hard time convincing lenders that you are serious or that you know what you are doing. A standard business plan should consist of a summary, a description of what your business will do, an analysis of your market and your competition, your expected expenses, your expected revenue and your strategy for growth.
- Your personal finances should be in order – A lender will factor in your personal financial situation into how much of a risk you are. If you have poor credit with a history of late or delinquent payments, then few lenders are going to feel comfortable approving you for a loan. However, a strong credit score and history will go a long way towards convincing lenders that you are financially responsible and that you’ll find a way to repay your business loan.
- You should have a strong resume – Your business plan may seem legitimate and you may have a strong credit history, but if you have no experience to speak of when it comes to the industry your business is a part of – or no experience with running or operating a business in general, then the lender will consider you more of a risk. Without any kind of a resume, there’s no proof that you’ll be able to handle the ownership and operation of a business, even with a strong business plan.
- You should figure out your collateral capacity – Even with a strong business plan, a strong resume and a strong credit history, there’s still a chance that your business could fail. To ensure that you will be able to pay back your loan even if this happens, a lender will want to know what collateral you can use in order to support your business loan. This includes assets, such as equipment and property.
- You should research your loan options – Don’t accept a business loan from a lender without going around and comparing different lenders. Every lender is different, which means that some loans may have higher interest rates than others. Some lenders will require a series of loan initiation fees up front as well. Read through the loan agreements to determine what the interest rates will be, how much the loan will cost you when all is said and done, and how much money you will be required to pay up front in order to obtain the loan. You may want to speak with other entrepreneurs as well to find out what banks and lending agencies they used and can recommend.
These are some of the important things that you should know about applying for a business loan. If you are starting a new business, then you may want to seek professional assistance with your bookkeeping and tax planning as well. Be sure to contact us at Valezar & Associates for more information about our small business accounting services today.