How To Secure A Loan For Small Businesses

At some point in time, small businesses must apply for business loans, whether to acquire operating capital or as finance for expansion. The following is a guide on how small businesses can secure these loans.

Whether you are securing a loan from the bank or from a friend, the lender will have the same expectations. Thus to increase your chances of securing a loan, you have to be aware of expectations, so you should take a moment to imagine yourself in their position. If someone approaches you for a loan for their small business, then you too would want to know what the borrower needs the money for, why, and even if they can repay the loan. Thus it is important to be aware of lenders expectations and be prepared to meet them.

The first step in the preparation phase is to gather all the necessary documentation to persuade the lender. As a borrower, you need to prepare the following:

The business plan must show what you intend to do with the money, and how it will be used to finance the business. This gives the lender an idea of why you need a business loan.

Your ability to repay the loan will be the main question lenders will want to ask. Therefore to give lenders an idea on your ability to repay them, you can present your business projections on cash flow which will enable a lender to fully understand your financial situation and make an informed decision.

A big part of your credit rating is your repayment history. The credit rating is a history of the things you’ve bought on credit and the debt repayments you have made. Although your loan repayment record is a big part of your credit rating, it will be your credit history that your credit rating will be based upon.

If you know your credit rating is good, it is not necessary to include it on your application. However if you don’t know your credit rating and/or you think it is bad, then it would be highly advisable to obtain one for your loan application.

Credit reports are usually received several weeks after filing for them. The credit report will include steps you can take if an error is found on your report. If the report shows a poor credit rating, then it is advisable to repair this first before applying for a loan.

A statement of your personal financial status provides a fuller picture of your finances. This usually includes a list of debts and personal assets, previous loans you have taken out (in total and including text loans).

Previous business tax returns also give a lender an idea on how your business is doing financially.

Once these documents are assembled you can now go to the next stage, which is convincing the lender that you have what it takes to manage a business loan by providing the lender with the information that will convince them:

Present your collateral or valuable-tangible assets and are willing to put down in order to secure the loan.

This loan article was written by Hans Meredith, author of several business articles particularly on the issues of loans (such as text loans, personal loans, business loans, etc.).