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What do you do when you come up with a great business idea and have no funds to follow through with it? Well, most people go to a bank or a credit union and apply for a loan. Still, having a good idea doesn’t mean they are just going to give you the money you ask for. Like any other interested party, lenders are quite careful with their funds and will only entrust you with them if they can have some sort of an assurance that you will pay them back. With this in mind, here are five things you should do before you apply for a business loan.
1. Think ahead of time
First things first, if you have any aspirations of starting your own business in the future, or believe you will be forced to take a loan, you need to start planning ahead. If you are going to an alternative lender, you need to create a strong and durable relationship with them, so that when the time comes, they have no trouble trusting you with the sum you need.
2. Personal credit score
Every individual and business out there has their own credit score. This is nothing more than a numerical representation of the ‘creditworthiness’ of the party in question. In other words, it is what tells the lender what the objective odds are that you will pay them back in time (or at all) if they decide to give you a loan. Naturally, having unpaid debts and late payments affects this in a negative way. When this happens, you need to look for ways to improve your credit store. Keep in mind, however, that this might be a lengthy process. From the information provided by this local credit repair company from Chicago, it takes around 90-120 days to see credit score improvements. It all depends on the communication with the credit report beaurus.
3. Check what’s out there
Earlier on, we mentioned institutions such as banks, credit unions and at one point even alternative lenders. From this alone, it becomes more than clear that you have several options to choose from. Because of this, you might first want to check out who has the best offer for your business. There are those who will excel at low income rate, others won’t ask about your credit history while some lenders,such as the NSW Mortgage Corp,who distinguish themselves by providing loans at unprecedented speed after application. The last one is particularly handy for a company encountering rapid growth or an unexpectedly increased workload.
Most lenders will want a physical guarantee of their money, in the form of an asset that your company or you personally own. Still, this doesn’t always have to be a property, a company vehicle or equipment. Sometimes, they will find your account receivables to be adequate assurance. Of course, they don’t have to match the amount of money you are asking for. In fact, most lenders will be satisfied even if the value of your receivables reaches half the worth of the loan you are applying for.
5. Establish a business plan
In the end, it is more than clear that the primary concern of the lender is whether or not you will be able to return the money they give you. One of the ways to put their mind at ease would be to present them with a well-written business plan and in this way, show them where the money will be coming from. Here, you will have to present factors such as market, team, product, financials, as well as a brief history of your company.
Just try to imagine a scenario where someone is coming to ask you for a loan. Would you give them the money, no questions asked, or would you rather ask for a guarantee that you will see your money back? Aside from a semi-complicated bureaucratic process, this is the basic principle most lenders abide by. To make a long story short, it is your job to persuade them that investing in your business (indirectly) is the safest investment they can ever make.