Many people think that getting a small business loan is completely impossible. This unfortunate belief leads many people to think that they simply cannot create a small business, and therefore what could become an amazing enterprise never becomes reality. Are small business loans hard to get?
When securing financing, it’s important to look at your business from a lender’s perspective. Would you invest in it? Will this business be profitable? How easy is it to recover money or how hard? To get a business loan, you must ensure that it will be so effective that the lender will not lose money. Certainly investors know that every investment involves inherent risk, but to be financially profitable, they must have at least 90% confidence that you will not repay the loan.
Decide which type of loan is right for you
The reasons why you need a loan will determine what type of small business loan you will get.
If you start a business, it’s virtually impossible to get a loan in the first year of your business. Lenders require cash flow to support the repayment of the loan, which is why start-ups are usually immediately excluded from financing.
Instead, you’ll have to rely on business credit cards, friends and family loans, crowdfunding, personal loans, or a micro loan from a non-profit lender. Here’s more information about start-up loans.
Collect financial and legal documents
Banks and other traditional lenders usually ask for a wide range of financial and legal documents during the application process. These may include:
- Income and personal income tax declarations
- Balance sheet and profit and loss
- Personal and business bank statements
- Photo of driving license
- Commercial leasing
- Business Licenses
- Company Statute
- A resume that shows relevant management or business experience
- Financial projections if you have a limited operational history
These requirements can make obtaining a bank loan time consuming. This may not be a problem if you are looking for a long-term business loan to finance a large investment.
Develop a strong business plan
Lenders will want to know how you plan to use your money, and they will want to see that you have a strong ability to pay back. They may require a solid business plan that sets out in detail the purpose of the loan and the expected increase in profits.
Your business plan should take into account current and projected finances and clearly show that your company will have sufficient cash flow to cover current business expenses and new loan repayments. This can give the lender more confidence in your business, increasing the chances of the loan being approved.