A small business loan is a brilliant way to get money to supercharge your small business ambitions. Whether you’re just starting up or looking to make further investments in your small company, always consider opting for a loan. It’s one of the best finance options out there and the easiest one to get.
Applying for a loan is pretty simple – you go to a bank or building society that offers this type of financial product. Of course, you can’t just enter a loan appointment without being prepared! Here are some tips to help you apply for a small business loan without embarrassing yourself:
Calculate how much you need to borrow and what it’s for
Lenders will want to know two things before handing out a business loan:
- How much do you need?
- What is the money for?
They’re unlikely to give you a loan if only one of these questions is answered. Look at your business and figure out how much money is required. Actually, the best way to do this is to think about the second question first.
Why are you applying for the loan? What are you going to use it for? Work this out and you’ll then get an understanding of how much cash is needed to achieve these goals. For example, maybe you want to upgrade all of your equipment so you can improve output. Great, now you can work out what this will cost, giving the lender a clear understanding of how much you need and what the money will be spent on.
Sometimes, lenders deny loans if they don’t think you’re spending the money on something worthwhile.
Create a thorough financial statement
A financial statement tells lenders everything they need to know about the financial stability of your company.
It shows them the following:
- How you generate income
- How much income you generate
- The cost of running your business
- Your cash flow
- All of your assets and liabilities (what you own and what you owe)
The secret is creating a truly thorough financial statement that leaves no stone unturned. One thing that catches many small business owners out is accounts receivable. As you may be aware, accounts receivable refers to any payments you’re expecting that haven’t been received yet. Believe it or not but people neglect to add this to a financial statement as they don’t think it matters. This is because business owners wonder: is accounts receivable an asset or not? In short, it is. Accounts receivable represent money your business is owed, so you technically do own this and it showcases more money coming in.
Don’t neglect this when writing your financial statement – and don’t forget anything else either. If it involves money either leaving or entering your business, make a note of it. Also, be sure you have evidence such as bank statements, tax returns and receipts to back your financial statement up.
Check your credit score
Your credit score will determine your ability to pay back debts. Lenders are always going to check this before your loan is approved. You could have the best loan application in the world, but a poor credit score may let you down.
Check your credit score using multiple credit checkers to be sure that it’s good across all of them. The higher your score, the better. It’s always worth looking into ways to improve your credit score, just to get the rating up as high as possible. Higher credit scores usually let you borrow more money or have access to better interest rates as you seem more trustable.
When getting a business loan, you also have to consider your business credit score. If you own a limited company, you will automatically have a credit rating for your business. Lenders are likely to look at this over your personal credit file. It’s effectively the same thing, only it measures your company’s ability to pay off debts. So, your personal finances don’t affect it – you can have an amazing personal credit score and a terrible business one.
Obviously, if you’re just starting a business, you will only have a personal credit rating. In this case, lenders will look at your personal score before making a decision. The safest approach is to work on both credit scores if you have them, just to ensure they’re equally impressive.
At this stage, you’re well-positioned to apply for a small business loan. Make sure you have a detailed business plan handy to accompany your application. If all goes according to plan, you’ll get some extra money to invest in your startup!
