4 Questions to Ask Yourself Before Applying for a Business Loan
Sep 18, 2019 22:21
So, are you an entrepreneur who is ready to finally be your own boss, make your own schedule and be a proud and successful business owner? Okay, good! It is likely that you are going to want to apply for a business loan so that you can start the business of your dreams. I am sure you want everything to be perfect! Here are a few questions to ask yourself before applying for a startup business loan!
Do I Have a Solid Business Plan?
How is your business plan looking? Is it a plan that will “wow” lenders and get you approved without a doubt? Just to be sure, your business plan should include an executive summary, your company description, market analysis, your organizational and management plan, services and products being offered, marketing and sales techniques, funding request, financial projections, and the appendix. Not only should your business plan include of these things, but it should be well thought out and well written. You plan needs to show lenders that you are serious and proud of your business idea. Writing a business plan takes a lot of research and time, but when you finally finish and get them big stamp of approval, it will be time well spent. If you need help writing the perfect business plan, you could use a business consulting agency like Seek Capital to assist with your business plan.
How Much Do I Need?
Part of your business plan is deciding how much you need to borrow. This is obviously important as you will need those funds to open your door to customers and you want to be sure you have enough. The amount should be for what you need and not as much as you can possibly get approved for. It is wise to take out a little extra for unexpected expenses, but don't go crazy and take out more than you will be able to pay back. Sticking to an affordable and realistic number will allow you to pay back your loan in the future. Well, before you can decide how much you need, you are going to have to ask yourself what you need it for, right?
What am I Using the Loan For?
Business loans can be used for many things. Business loans can be used to purchase real estate, to expand your business, to purchase inventory, equipment purchases, to gain working capital, upgrades and for emergencies. You probably are not going to purchase real estate for your business, but rather rent it out. The money can be used for the first few months of rent, deposits you may need and renter’s insurance. Your business most likely needs equipment too. You can decide if you are going to rent or purchase the equipment as well. Whatever you decide, a business loan can help with the costs. You might need a business loan to paint the office and buy furniture for the office. Lastly, that money can come in handy if you have an emergency. Having back up funds can help with any unexpected costs that could potentially put you out of business. So, have you broken down your needs and decided what you need the business loan for?
What Factors Are Lenders Going to Consider?
What are lenders looking for when they are reviewing a business loan application. You might want to look and see if you meet the requirement before wasting your time applying for a business loan. Let’s break down the requirements and see if you meet them. So, the first requirement would be credit. So, how is your credit score? Is it good, excellent or poor? If you are a startup business, they will look at your personal score and you are likely going to need at least a 600. If your credit score is lower than 600, maybe you should try to improve your score before applying for a bank loan. Another requirement would be collateral. Lenders will often see what you have to offer for collateral, just in case you cannot pay back the loan. Some things that are often put up for collateral would be real estate, cars and equipment. Please note that not all business loans require collateral, but it is good to understand all possible requirements. Lenders will often consider your cash flow as well. So, do you have a healthy amount of cash flow? Having a financially stable amount of cash flow will show lenders if you can pay the loan back. If you are low on cash funds already, it may set off an alarm for lenders. Lastly, age of your business. Are you a small business with less than 2 years of experience or a startup? It is often that lenders are going to expect at least some experience, but if you are a start up, you need to make sure you have realistic financial projections in your business plan.
Now that you have hopefully read through and thought about your readiness to apply for a business loan, you can either go ahead and apply for a business loan or make some improvements first. You want to be sure you are ready to apply for the loan and feel confident about your approval odds. Just make sure you have perfected your business plan, checked your credit score, know how much you are going to ask for and know exactly why you need a loan in the first place. Then all you have to do is get approved and get your business going! Good luck!
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