Whether you're starting a new business and need funds to help cover your startup costs, or need extra capital to expand your existing small business, a small business loan can provide the money you need. The following guidelines, set by the Small Business Association (SBA), will help you determine if you qualify or a small business loan.
Step 1: Have a solid business plan.
Whether you are applying for a loan from a traditional lender such as Chase Bank or an alternative lender such as OnDeck, a thorough business plan is a must. You need to demonstrate that you have a well thought-out and organized plan of action and explain how you plan to spend the loan money in order to achieve your goals.
Step 2: Make sure your personal credit is in good shape.
You (and any partners in the business) need to have a solid credit history in order to qualify for a small business loan.
Lenders want to see how you have handled debt in the past and make sure that you do not have a history of defaulting or making late payments. This goes a long way in assuring them that you are responsible with your financial commitments.
Step 3: Determine any business or personal assets that can be used as collateral.
This can include equipment used by the business, a vehicle, or real estate. It is generally easier to obtain a secured loan, and you will likely qualify for better interest rates if you are willing to back up the loan with property.
Step 4: Decide how much money you can invest in the business.
All lenders require that the business owner put some of his own money into the business. This shows that you believe in the business enough to risk your own money.
No lender will provide you with 100% financing. They will typically expect you to invest about 20% equity. The more personal equity you invest, the more favorably the lender will look upon your loan request.
Step 5: Update your resume.
This might seem a strange recommendation, but business lenders want to see your work history. You may not be interviewing for a job, but you need to demonstrate that your education, experience, and accomplishments set the basis for your success as a business owner.
The more professional you appear, the better your chances of securing a loan.
Step 6: Make a list of references.
Your list can include personal references, but should also have a few business references, as well. Past colleagues and supervisors, as well as vendors and clients who can vouch for you and/or your business.
There are millions of small businesses in the U.S. Whether yours succeeds or not is a matter of being prepared, dedicated, and committed. Traditional small business lenders as well as alternative lenders, are there to help you succeed, but you need to be able to meet their requirements. By following these guidelines you should have an excellent chance at securing a small business loan to establish or grow your business.