Need a Small Business Loan? 6 Things to Consider Before Applying
Every year, more than 627,000 small business owners open their doors for the first time. No matter what industry they’re in, they all need startup capital to make their business idea a reality.
If you’re thinking of starting a new company, you know that finding a small business loan isn’t always as simple as you might think. You need to make sure you’re ready to borrow the money and have a plan to use it the right way before you can even apply.
For most new business owners, the application process can be almost as overwhelming as coming up with the business idea in the first place. Here are a few important things to consider before you submit your first loan application so you can be as successful as possible.
1. How Much You Need
Before you can start looking at different small business loan options, you need to know how much money to ask for. Think about your plans for the loan and the estimated costs those projects will have.
Write down each project you want the loan to help pay for. If you have quotes for those projects, use those quotes to guide your loan amount.
Remember, you want to borrow enough to bring your vision to life but not so much that it puts your business at risk for bankruptcy.
If you’re not sure how much money you should borrow, talk to your mentors and other business owners. Ask them for advice and see what they suggest. Your needs may be different, but knowing what others in the industry would borrow can help you better narrow down your options.
2. The State of Your Business Plan
Before you can apply for a small business loan, you need to make sure your business plan is ready for the task. Lenders look at your business plan to better understand how your business operates and how you’ll be able to repay the loan in full.
If you don’t already have a business plan in place, write one as soon as you can.
Your business plan should function as an outline for your business. This means you’ll need to explain how your business runs, the types of products you offer, how you’ll use the loan, and the steps you’ll take to pay it back in full.
Without that business plan in place, you may find it hard to qualify for any type of loan. Keep in mind that you can always apply for a personal loan to get your business up and running. This way, you can take your time creating a comprehensive business plan.
3. Your Credit Score
Your personal credit score is a huge deciding factor in your ability to get even small business loans. Think of your credit score as a direct reflection of your financial strength.
If you have a high credit score, it shows lenders that you’ve avoided debt, made payments on time, and are financially responsible. If you have a low credit score, it shows lenders that you’ve struggled with your finances in the past and may have a hard time paying back your loan.
The best thing you can do is find out where your credit score sits. You can do this for free and should make a note of the number once you have it. If your score is high, you can apply for a business loan easily.
If it’s on the low end, you’ll want to either make an effort to increase your score or look into loans for poor credit borrowers. Poor credit loans will help you get your business started while also helping you improve your credit score as you pay the loan down.
4. Which Lenders You’re Interested In
Believe it or not, choosing the first lender you find isn’t always the best idea. You need to shop around to make sure you’re getting the best deal possible.
This is because different lenders will view your financial situation and your business in different ways. One may see you as a high-risk borrower and may offer you a smaller loan with a high interest rate. Another may see you as a low-risk borrower and may offer you a larger loan with a lower interest rate.
The only way to know which type of lender you’re dealing with is to get quotes from several companies. Compare those quotes in detail and choose the lender you’re most comfortable with.
5. Alternative Loan Options
Business loans aren’t the only option you have when it comes to financing your business. There are many different alternative financing options you can use if lenders keep denying your application.
Personal loans for poor credit borrowers are just the tip of the iceberg. You can also partner with investors, crowdfund your expenses, or even take loans from friends and family.
Whatever your choices are, make sure you’re comfortable with the arrangements you have with each lender or investor.
6. Your Readiness to Pay Back Your Small Business Loan
No matter what type of loan you choose, you need to be able to pay it back in full by the end of the loan term. If you can’t, you risk hurting your business.
Before you apply for and accept any small business loan, make sure you’re comfortable with the minimum required payments. If you think you can make those payments on time every month, the loan is a good fit for your needs. However, if you think that the payments are too high or would put too much strain on your business, you’ll need to look for a different financing option.
Consider These Things Before You Apply
Applying for a small business loan is a great way to finance your business’s growth. Just make sure you consider these key things before you submit your first application.
This way, you’ll be sure to get the best loan for your needs from the very beginning.
If you’re looking for a great small business loan but aren’t sure where to start, don’t panic. Contact our team to discuss your business’s needs as soon as possible. We’ll help you find the right loan for your growing company so you can start building a reputation quickly.