You can have the best business concept in history. But without money, you won’t get far. Unless you have a surplus of funds in your savings account, you’ll probably need a bank loan. That means convincing a loan officer that you’ll be able to repay the loan over the course of its life. For new businesses, this can be challenging, especially with so many banks tightening lending policies.
As dire as it seems, even the smallest startup can land a loan with the right amount of preparation. Before you approach the bank for funds, it’s important to make sure you have everything you need. This list is designed to improve your chances of success as you search for a loan for your new business.
Choose the Right Institution
Often the biggest determining factors will be the institution itself. Large lending institutions like multinational banks have strict policies in place when it comes to issuing loans to customers. These policies are designed to minimize risk, so startups may find that they have better luck with a small, local bank or a credit union. Entrepreneurs may also find a bank where they’ve had an account for a period of time is the best route, especially if they’ve reliably paid on personal loans through that institution.
The Small Business Administration (SBA) has guaranteed loan programs designed to help businesses that might not otherwise be able to get bank loans. The SBA guarantees loans issued to businesses who have been approved by one of its loan programs. However, to qualify, a business must meet the SBA’s guidelines, which apply primarily to the size and type of the business, as well as the planned use of the loan dollars.
Have a Strong Business Plan
Your lender will want to know as much as possible about your business before agreeing to a loan. If you haven’t already, put a strong business plan together before approaching the bank. This plan should include biographical information on everyone involved in running the organization, as well as detailed information about your goals, marketing plan and operational setup.
The financial aspects of your plan will likely be of primary use to a lender. Include your cash flow predictions for at least the upcoming year, as well as both your credit history and bank statements. If your business has a financial history, include credit and bank information about that, as well. If that history includes revenue from normal operations, be sure to include any supporting financial statements.
Consult With an Accountant
As you’re putting your business plan together, you might find it helpful to visit a professional who can help you get your financials in order. If your business is already in progress, it will be important to show that your business’ income is increasing. If you’re a brand new business, you’ll need to show how you’ll bring in enough income to cover the ongoing costs of manufacturing and administration.
An accountant has the knowledge necessary to make those numbers as appealing as possible. Over the course of a consultation, you may learn that the plans you’ve put in place won’t work as effectively as you thought they would. The result you want will be a plan that will not only impress lenders, but will boost your own chances of success.
Seek Legal Expertise
There are legal matters you’ll need to attend to prior to seeking a bank loan. You’ll need to have all of the proper paperwork filed with your state, as well as having begun the process of trademarking your business name or patenting your products. An attorney can advise you on this process and even handle the paperwork for you.
One of the most important reasons to visit an attorney, however, is to make sure you’re personally protected against any lawsuits that might arise. A legal professional can guide you as you set up your corporation to minimize any personal or professional liability. By demonstrating to banks that you’ve taken this important step, you can increase their confidence in your reliability as a borrower.
Startups need funding to build and grow. When a business owner takes the time to prepare for a visit to a lender, that business owner improves his chances of success. In addition to choosing the right institution, entrepreneurs must create a comprehensive business plan that shows their businesses are financially sound before approaching a bank for a loan.
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