At some point in the life of their business, most entrepreneurs will need to apply for a business loan in order to grow. In tough times, that can be a difficult challenge. However, the better prepared you are, the better your chances of success. Here are a few tips:
1. Determine your need
Why do you need the money? Be clear to both yourself and prospective lenders what business objective you plan to achieve with a loan.
2. List the costs
Once you have specified why you need the money, research to determine all the costs of supplies, items, services, etc., that you will need in order to achieve your goal. Cast a broad net. Factor in fees, taxes, and any and all associated costs. Once you have your figure, add more for unforeseen expenses and contingencies.
3. Determine how you will repay the loan
Review your cash flow and business financial information to calculate how long it will take to repay your loan. Your banker wants to know that you are a good risk, so be prepared to show that you are.
4. Determine what type of loan you need
Two basic types of loans are secured loans and unsecured loans. A secured loan requires putting up collateral (a bank account, home, etc.). Unsecured loans require no collateral but are much more difficult to obtain. If it is an unsecured loan you are seeking, you will need a high credit rating and will need to provide much more personal and business financial information, including a business plan.
5. Shop around
If you are looking for a secured loan, talk to the loan officer at your bank and ask for information about their loan programs and the borrowing terms, rates, limits, and variables of each program. Before you make a decision, shop around. Research information from other local banks and Internet lenders. Take into consideration the variables, as well as rates of each potential loan, and choose the loan program and bank that best fits your needs.
6. Be prepared
Show your bank you are a low-risk proposition. At a minimum, you should be prepared to present a complete loan application, have strong business and personal credit, address how the money will be used, and be able to prove your ability to repay the loan. Depending upon the loan you are seeking, you should prepare a typed cover letter and documentation listing your business objective, how much money the project requires, how much money you or others are investing in the project, the loan amount needed, and how the money will be spent. Include copies of cash flow and financial statement projections for at least three years, any pertinent graphs or brochures that help to back up your request, and a business plan. Your business plan should include information about your experience and expertise. No business objective is without risk, so be sure to address risks as well. Outline any risks you foresee and how you plan to handle and overcome them.
7. Make your case
Before you meet to present your case, review your information, practice what you will say, and be prepared to answer questions. Expect to spend about 30 minutes presenting your case to a bank loan officer. Dress professionally, treat bank officials with respect, and convey your case honestly and with confidence, using accurate figures to support your claims.
8. Put yourself in your banker’s shoes
Three of the first questions in your banker’s mind are: Why do you want the money? How will you spend the money? Are you a good risk? Every step you take should prepare you to answer those questions honestly and with conviction.
If you do not succeed on your first attempt, do not give up. Learn from your first attempt and try again. You may also want to ask other business professionals to provide a referral for you to their loan officers.
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