Getting started in any business is the biggest challenge, especially when you have limited sources of capital. Capital is the soul of any business, whether starting or existing. There are many sources of capital in the market, but most of these sources requires tough terms and conditions. These conditions lock away small entrepreneurs, with dreams of owning a business. applying for small business loan is the best idea of financing your small business. To get small business loan, you must follow various verification process. You have to verify your source of income, your business plan and your creditworthiness. This article will walk you through the process of applying for small business loan, and various factors to consider.
1. Before visiting any financial institution, check your credit history to find out if it is strong enough. Lending institutions use your credit history as the baseline to decide if you are qualified to secure the loan. Therefore, you must have a high score to be on the safe side. You should address any irregularities in your credit history, which may affect your chance of getting a loan. In case your business is already running, check if it has any disparities especially in tax credits.
2. Have a strong business plan, which is well-organized. Financial institutions will need a strong business plan, to convince them you will be able to repay their loan. You business plan should include your business future goals, objectives and expansion potential. Any lending institution will consider funding a potential business plan, so that they can have guarantee on their money. In the business plan, include the amount of money you need, and how you intend to use it. Your plan should also include expected returns on investment. This will portray your skills in financial management, a quality many financial institutions consider.
3. Do a market research. In case you are starting the business, do an extensive market research. Include your findings in your business plan. Business report will show the viability of the niche you wish to venture. The niche should be promising and it should not have many risks. Some financial institutions may need you to amend your business plan to fit their terms and conditions. Therefore, you should present a flexible business plan.
4. Contact various financial institutions to know the type of small business loans they offer. Take your time to compare various loan conditions and terms. Interest rates and collateral needed are the two conditions you should note. Choose the institution with favorable terms and conditions, which fit your expectations.
5. Provide collateral for your loan. Collateral is the security you offer to the financial institution, as a promise you will pay. You can use any property you own, or any other asset depending with loan terms and conditions. Lastly, you need to give a significant equity or savings in your business. This will help the lender to understand the loan is only an ancillary. Meaning your business is not entirely depending on the loan as a source of capital.