As much as we may want to start a small business with our own money, sometimes we do not have the capital to do so. There are so many things to be done before the launch: paying for the registration, equipment, domain – and this can’t be done without a healthy sum of money at hand.
Thankfully, this can be resolved with a small business loan. At this point, anyone who wants to launch themselves on the market will have taken a small business loan. However, in order to make such a commitment, you will have to know everything there is about this type of loan. Thankfully for you, we are here to help.
What Is a Small Business Loan?
Like its name suggests, a small business loan is a loan that you take out when you want to finance a business. Terms, uses, costs, and other particulars may vary – but in essence, this loan is borrowed from a lender with the promise that it will be paid back with interest over a specific amount of time.
Unlike personal loans that can be taken out for a variety of reasons, usually on a “no questions asked” basis, a small business loan will only be used for business purposes. Usually, it will require a long-term business plan that will assure the lenders that you will have the means to eventually pay that money back.
How to qualify for a Small Business Loan
Qualifying for a small business loan can be easier than it seems, provided you meet the criteria. Here is what you will have to do to qualify for most loans of this type.
Write a detailed business plan
No bank will ever take you seriously without a thorough business plan. If you want a bank to trust you enough as to give you a loan, you need to show them that you have everything planned ahead. Explain to them how you will be using that money, and how it’s supposed to bring you profit.
Prepare financial statements
If you already have an existing business, you ought to prepare your financial statements. Bring out your past income statements, balance sheets, tax forms, and cash flow sheets. This thoroughness will certainly influence whether you get the loan or not.
Take a look at your credit report
Before opting for a small business loan, you should look at your and your partners’ credit report. Make sure that your credit report is as solid as possible, as it will improve your chances of getting an advantageous loan, with an interest rate that is as low as possible.
Many lenders will look at your “character” and trustworthiness before deciding to give you a loan – and this will not necessarily include statements from your credit report. Instead, they will inquire for professional references and will likely conduct a background check on how you handled previous businesses. If they see that you are a loyal person that does not try to escape from their responsibilities, then it’s very likely that they will give you a loan.
What Can Get Your Small Business Loan Rejected
There are several cases in which your small business loan might get rejected – and most of the time, the reasons are the following.
The business is new or hasn’t even launched
As a new business, it might be rather difficult to raise funds. This is because the lender does not have much to go on except for your wish to start a business. Considering that this does not do much to provide them assurance, you need to try your best to make your business as successful-looking as possible. Work long and hard on your business plan
You have a low FICO score
Bad credit can put a great stamp on your attempt to take out a loan, which is why you might not have gotten the small business loan in the first place. If you want to take out a small business loan successfully, you might first want to fix your credit score. This will raise your chances of having your loan approved.
You did not bring collateral
As mentioned, a small business that has barely even started can’t be seen with the best eyes – as you don’t even know if your small business will be successful. In this respect, you might want to bring some assurance in the form of collateral. You may not have to give it up – but the lenders will feel better knowing that if anything goes wrong with the loan, they will have the means to recover their money.
Without proper financing, you might not be able to start or run your small business the way you want it to. However, a small business loan might take you out of a tough situation – provided you meet the requirements.