Many small business loans are available, which you can use to finance your start-up business. The benefits are abundant since they will provide you with the means to help your business grow and fund new research and development.
You can also expand into new markets and improve your sales and marketing efforts. Getting unsecured business funding will be tough for you since there is no collateral involved, so the ten key steps mentioned below will help in receiving funds for your start-up business.
1] Analyze the different types of loans available
It will be easier to find a suitable loan for your business if you know the funding options that you have at your disposal. The loans vary depending upon your business needs, the payback period of your loan, and the specific terms which are attached to the loan.
Some of the loans available for you are the small business line of credit, account receivables funding, and working capital loans. Each comes with its pros and cons. So it will be better for you if you do your homework.
2] Research about the available lenders
Now that you have decided about the loan that you will borrow, look up all the lenders in the market who are offering the loan of your choice. This will help you get a clear idea of the market rate, and your probability of getting the best deal will increase.
There are several lenders you can turn to, such as banks, online lenders, peer to peer lending, etc. Although approaching banks at first seem rational, but they will usually charge a higher interest rate as compared to other local lenders who will not be suitable for your business.
3] Determine your eligibility score
Before handing out their money, lenders look at the profile of the borrower and judge their trustworthiness. They do this by looking at their history and previous decision, so it would be a better idea to check if you may be eligible for a particular loan or not.
There are several things you need to know, such as credit score, cashflows, inventories, outstanding loans, and many other factors that will determine if you will receive a loan or not. Thus, it is better to keep track of your records and maintain your credit scores so that you may easily secure a loan when you are in dire need of it.
4] Make sure your documents are updated
Usually, depending upon the size of the loan, the majority of the lenders will request you to show them your financial statements. The lender will review your financial performance and accounting records carefully before deciding to give you the loan, so make sure that your financial records are updated at all times.
Nothing will make a worse impression than handing out incomplete or inaccurate documents to your lender who may refuse to invite you in the future if you get caught. It will be better if you ask a specialist accountant to look at your documents so that errors are found before you go to visit your lender.
5] Develop a solid business plan
Having a detailed business plan is the first step before you secure the loan. The lender will want to know the reason why you want the loan and how you will utilize it in your business. You will likely have to provide detailed information and the required documents about your business so it will be better to be organized and prepared beforehand.
If we analyze from the lender’s perspective, having a detailed business plan would indicate that the borrowers have a firm plan about their business and are aware of how they will achieve the best out of their loan and may give them the necessary funds.
6] Determine the loan amount
When you meet the lender, they will ask about the amount you will require for your business and make their offers accordingly. They will also want to know about your plans with the funding and the purpose you will use it for.
You may want to borrow more than you require in case you suffer from any liquidity issues in the future. Therefore, it will be necessary to provide all the required documents which the lender will ask for before deciding upon the loan amount that you will receive.
The main concern for any lender is if you will be able to repay the loan that you borrowed. Thus, borrowers present collateral to the lender that can be used as a guarantee for the repayment of the loan, which includes equipment, accounts receivables, and the property of the borrower.
8] Understands the key aspects of the loan
Before deciding to fully commit to the loan, you should completely understand its specifications. Bring a financial expert if you do not have a commanding grip on finance so that you are aware of what you consent to and are not tricked by the lender into unfavorable demands.
Some of the aspects that you should pay close attention to are the repayment period, the interest that you will pay, commission fees, and penalties that you might come across. All of these terms will play a significant part in your decision making so prepare for them beforehand.
9] Review your profile
You should update the website and any other platforms for your business so that it is recent and looks professionals since the lenders will search for them to get a first impression of your business.
10] Have a backup plan
If everything goes well, hopefully, you will get your loan. Still, not all the applications are successful. Therefore you should have a backup plan in place if you fail to get the loan since it will determine the future of your business if you are facing severe liquidity issues.
The Final Word
Securing a loan can be worrisome but if you have done your research and fulfill all the requirements than the process can be a breeze. It is necessary to be open to all the options you have. You can follow the tips mentioned above to ensure the speedy growth of your business.