Follow These When Applying for a Small Business Loan

Small business to requires finances to keep operating which can be acquired in the form of a business loan. The most frequently availed form of financing for small business is debt financing. Debt financing is funds borrowed from a lender at a fixed or floating rate of interest, for a predetermined time period. With debt financing, the business raises money for working capital or capital expenditures by selling bonds, bills, or notes. The amount of financing for small businesses can be obtained by applying for a loan to banks or NBFCs.

Certain details have to be kept in mind while applying for a business loan –

               1. Purpose and amount of business loan –

Usually, it is expected that owners of start-ups may only be in the process of deciding and settling the number of funds they would need. But it is advised that every business owner, irrespective of it being a start-up or existing one should take some time and be able to understand and express why they need a business loan and how much they would need. Often business owners are not able to ascertain how much they need beforehand until they draw up their ​financial statements as part of their business plan.

              2.  Ask for help and advice from bank executives –

If your business is a start-up, getting some advice and help from experienced professionals is very beneficial. These days, online advice and online counseling are readily available at the tip of your fingertips. These professional experts help small business owners or a start-up owner also with the application process for a small business loan.

               3. Evaluate your credit history –

If you have a start-up business or one which is less than three years old, your personal credit history, as well as your business credit history will be evaluated. Prior to applying for a small business loan, make certain that your personal credit history is appropriate and acceptable. Review your credit reports to check for any errors. A credit score of about 700 is very good and significantly increases your chance of being approved for a loan.

                4. Review your borrowing options –

Check at the commercial banks near you. There is generally a better chance for instant approval of a loan at smaller regional commercial banks or other Non-Banking Financial Companies. Other options are various ​microfinance company that gives loans to startups.

                5. Prepare your business plan –

This is the most vital part of your commercial loan process. First and foremost, to apply and procure funds from any lender, you have to prepare a good business plan. You might not even know how much money you need or how quickly can you can repay it, without a sound business plan. A good concise business plan will have a compilation of past and project financial statements of your business. It should include details of the collateral along with the type and value of assets. An analysis of the market for your business product will also be required.

                6. Plan a presentation and make the appointment –

Any business proposal has to be made convincing and appealing to the lenders, for passing the loan application for your business proposal. The presentation should be a striking, brief and irresistible description of your business plan. It should be a narrative of your financial statements, spreadsheets, charts, with necessary graphs. Prepare a crisp Executive Summary as most loan officers prefer to read the Executive Summary first and decide whether they are interested in based on that. Plan an appointment with your loan officer for a short presentation, with visual aids, based on your business plan.

Additional Reading – Does Your Small Business Need A Loan?

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