Are you ready for a business loan? Knowing the answer to that question is the first step you must take to be approved for one. There are all kinds of business loans to consider, depending on your particular situation. However, it’s imperative to have your finances straight before you ask for a business loan. You don’t want to be rejected unnecessarily.
Make Sure The Finances Are Complete
A lender is not going to hand you any money if you don’t show them the business finances. Be sure everything is in order – have current bookkeeping records and accurate income statements (profit & loss statement), balance sheet, etc. You want to have anything they consider financial in hand and current.
This step should already be done – or else, why would you get a loan. You also want to make sure the file is current for tax season, which could do just as well for the prospective lender. Of course, it’s better your books are updated once a month or every quarter. Make sure you have an accountant who can focus on the business’ finances while you deal with the other aspects of the company.
Create Financial Statements
After you’ve gotten finances together, it’s time to produce the reports lenders will need to consider the loan. Again, you’ll need a balance sheet and the profit and loss statement. QuickBooks, Xero and other accounting programs will help you generate this information right away. If you hire an accountant out of the office, they should have these reports handy.
- Profit & Loss Statement – demonstrates the business’ revenues and expenses for a period of time.
- Balance Sheet – a quick look at the business’ assets and liabilities. Assets are items such as cash, equipment, inventory, etc. – anything valuable. Liabilities are loans, accounts payable, credit card balances, etc.
Better Your Business Credit
While the financial reports demonstrate the ability to pay a loan back, there are several factors that also play into whether or not you are approved for a business loan. Your company’s credit score plays a big part too. This score is a reflection of your history in making timely payments, ability to manage loans and estimate the risk level on the loan.
The business credit score is similar to personal credit scores, as they help lenders determine if you will pay the loan back or default. However, the information and factors that determine these scores will vary.
Determine How Much You Really Need
Before you start the loan process, figure out how much loan money you need. What amount will suffice to get you through what you need to address? If you ask for a bigger than necessary loan, chances are you’ll be denied or pay interest on money that you really don’t need. If getting an installment loan, a smaller loan equates to a smaller payment each month.
If you’re not sure, consider a line of credit instead, which is similar to a credit card and popular for business owners because of the flexibility it provides.
Do Your Research For The Best Terms
By knowing how much you need and all the documentation necessary to get the loan, you need to do some research to find the bank with the best loan terms. Spend a fair amount of time on this step, so you don’t pay more than you have to. The bigger the loan and lower the interest rate, the less you have to pay back.
Where You Need To Apply
After you’re done your research, now it’s time to know where to apply. Do you want to do it in person or online? Loan officers will help you to fill out the application and ensure the process goes smoother. Be sure you’re transparent about why you need to loan and about any personal finance struggles you may have. The quicker your answer, the quicker you’ll know if your loan was approved or denied.