It takes more than just an idea to start your business. One of the critical factors is capital. While there are options such as borrowing money or taking an investor on board with you, taking a business loan from the bank is still common. But before you propose a loan request to the bank, you will have to get certain things on the spot to improve your chances of getting your request approved.
Most entrepreneurs often fail to secure a loan as they are unprepared or demand an unrealistic sum of money. To make sure your loan gets approved, we have listed down a few tips to help you secure a business loan.
1) Have a solid business plan
A good business plan can make or break your business, and that is why you should prepare it thoroughly and carefully. The business plan is a detailed report of your business that the bankers will use to decide.
Make sure your business has proper objectives and the strategy you will use to achieve them.
2) Mention long-term goals
Just making money should not be the only goal of your company. You also have to plan for business growth. For instance, you might wish to double the size of your company in 10 years or introduce a different product line.
These long-term goals would help the banker to determine and evaluate your business. Moreover, it would also help you pitch your project and raise the chances of getting your loan approved.
3) Demonstrate your business knowledge
Business always faces competition when it enters a market, and that is why it is essential to stay up to date with the latest trends. When you know what is happening in your industry, lenders will be confident in giving you the loan if you possess high knowledge about your business.
It is recommended that you conduct a SWOT analysis of your business. It is the perfect time to show off your knowledge and impress the bankers.
4) Be ready to talk numbers
You have to make sure that the amount you are proposing to get on loan is realistic. Asking too much or too little can cause your business to fail, so make sure you demand an optimum amount.
Compare the credit options available and choose which fits your need the best. Then, work out how you want it t be supplied and the type of security you wish to provide.
5) Sort out the details
The more clearer you are, the better your chances are to get the loan. Make sure all of the details are complete, and your business is ready for presentation.
During the application process, you will have to answer specific questions like why do you need the money? And how will you use it? Ensure that the reason you need the capital is essential for your business growth. A solid reason to raise capital will impact the lender and improve your chances of success.
You should also prepare a detailed budget on how you will spend the loan. The document will include the cash flow projection and financial documentation backed by the experts.
If you are doing a partnership, lenders will have to know about your other partners to verify the members are credible.
6) Have a strong credit history
Ensure that your credit score is high before applying for a loan. If it is low, then spend some time improving it, as low scores can discourage lenders from lending you money. Also, focus on paying the bills on time to ensure your score improves.
If there are still red flags in your credit history, you should explain why and what you are doing to repair them.
7) Consider other sources
Banks are not the only source of lending. You can consider other options if the bank rejects your application or cannot offer the money you want. Some of the examples are:
- Credit unions
- Crowdfunding
- Equity investors
- Family and friends
Final thoughts
Don’t lose hope even if your application was rejected. Learn from your mistakes and try again to meet the criteria. You can even ask the lenders to refer you to another investor interested in the business model. Look beyond the traditional banking loan schemes and be open to other alternatives.
