It is quite often that a starting entrepreneur gets denied with an application for a loan. While others may be successful with their loans, they may also find themselves dealing with strings attached to the arrangement. In getting an application, business owners must realize that investors and banks operate under standard principles when lending money for business. Below are the basic steps that you should consider in getting that much needed loan for starting your business.
Know the Reason for your Business Loan
This is especially important for any starting businessman. While most may think that this step already goes without saying, some borrowers tend to be confused on why they need the loan on the first place. Applicants should identify the intended purpose, whether it is for replenishing capital or for facility expansion and equipment upgrades.
Know the amount
Business owners need to be clear and very specific on both the reason for the loan and the reason for the amount specified on the application. Even existing business firms may not be able to fully address the questions on why and how much not until they start preparing their financial statements.
Get expert advice
Those who are running a start-up business may benefit from the advice of experienced executives. If you are a small business owner, you may want to visit any local chapter of the SBDC or Small Business Development Center. This organization serves to assist any new and existing businesses. SCORE is another wonderful source for advice for any entrepreneur struggling with a loan application. This is a non-profit organization which mainly consists of volunteer retired business executives.
Know the Reason for your Business Loan
This is especially important for any starting businessman. While most may think that this step already goes without saying, some borrowers tend to be confused on why they need the loan on the first place. Applicants should identify the intended purpose, whether it is for replenishing capital or for facility expansion and equipment upgrades.
Know the amount
Business owners need to be clear and very specific on both the reason for the loan and the reason for the amount specified on the application. Even existing business firms may not be able to fully address the questions on why and how much not until they start preparing their financial statements.
Get expert advice
Those who are running a start-up business may benefit from the advice of experienced executives. If you are a small business owner, you may want to visit any local chapter of the SBDC or Small Business Development Center. This organization serves to assist any new and existing businesses. SCORE is another wonderful source for advice for any entrepreneur struggling with a loan application. This is a non-profit organization which mainly consists of volunteer retired business executives.
Know your credit history
Any owner of a starting business which is less than 3 years old will be subjected to a credit history evaluation by the bank or investor. It is often in this area where banks find a reason for denying a loan application. Therefore, it is important that you get your credit history in order. Check for any disputes and discrepancies.
Demonstrate credit worthiness
When a bank or investor evaluates your credit, there are generally four areas considered upon making the full assessment. The bank analyzes the business owner's capacity to repay the loan. It is important for any applicant to specify how and when the loan will be paid back in full. The collateral is another crucial factor. This acts as a security for banks and investors. This can be any form of property owned by the applicant or business. Collateral can also come in the form of a guarantee that someone else will pay the loan in the event that the applicant cannot. The bank also considers the owner's personal investment into the business. This is basically the capital and the banks will strictly evaluate the amount and overall quality of the capital that the business owner can provide. The personal qualities of the loan applicant are also considered during credit analysis. While this may seem subjective for most, banks place value on the overall character of the applicant. Everything from personal background, educational experience and professional experience in the chosen industry are evaluated when applying for a financial investment.
Know the economic conditions
The conditions that may affect an investor's decision include the overall economic climate during the time of application. Undeniably, banks will view tight economic conditions as a challenge for any loan applicant to be able to pay back the investment. Furthermore, periods of recession also mean that banks will have a tougher time in funding every loan application that comes their way.
Review your borrowing options
It is best that you consider all the commercial banks available. While most are attracted to large national banks, regional institutions should warrant a priority spot in your prospective list. The chances of getting a loan are actually much higher when you got small commercial banks. Of course, there are other great options available. Business owners who are members of a local credit union can also consider meeting the loan officer in charge.
Make a solid business plan
A good business plan is one of your best weapons against loan application denial. Financial institutions will most certainly require a business plan along with the loan application. The business plan should be extensive and include relevant information on past and present financial statements. It should also include a clear market analysis for the business as well as your overall experience in that industry. The value of the assets to be used as collateral should also be distinctly indicated.
Being successful in your loan application requires transparency with all your relevant financial information. It requires a confident entrepreneur who has strategically planned out the business in all its key aspects.
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