Improve your chances of acquiring small business loans
Starting a small business is impossible without a small business loan. Acquiring the seed money for your small business can be extremely difficult as lenders will review a number of things like your personal credit, business plan, and even your education. Here are some tips on how you can acquire small business loans.
Tip # 1 - Work with the right lender
The first thing to do is take a look at the lenders that will work with you. Not all of the lenders will be able to provide you with the funding you need for your business as they simply cannot afford to take on the high risk that comes attached to small businesses. The Small Business Administration can provide you with financing if you have been turned down for loans by other businesses.
Tip # 2 - Why do you need the loan
The lender already knows you need the loan, but they want to know where all the money is going to go. Do you plan to use it to purchase machinery, hire employees, etc.? As you make a list of all the reasons why you need a loan and where the money is going, lenders will have an easier time providing you with the funds. You must also show them how you play to repay it and how timely you will be able to repay the loan.
Tip # 3 - Know your loan options
When you are applying for loans, you need to clearly understand what your loan options are. There are 2 basic types of loans, short-term and long-term loans. Gaining approval for the loan is also based on how much you need. If you are asking for too much money, lenders will be hesitant about providing you with funding for your small business.A short-term loan is commonly used for the purchase of assets and for inventory. A lot of businesses turn to these loans to fix problems within the company like if you have equipment malfunctions and they need to be repaired. When you apply for a long-term loan, you are most likely using the money to expand your business or to purchase expensive machinery that will make your business more productive. If you acquire a long-term loan, you will follow a repayments plan through monthly installments. With short-term loans, you can sometimes have a one-time payment or you can divide the sum into a few smaller payments so you aren't paying monthly.
Tip # 4 - Creditworthiness
Lenders also assess your credit rating to find out if you are worthy of a loan. They want to see a high credit score as this shows you have the ability to borrow and quickly repay money that you borrow. A good credit rating is 680. When applying for a loan you want to try and have your personal credit at 750 or higher. This reduces the risk to the lender as most small business owners run their business finances the same way they have run their personal finances.
Tip # 5 - Collateral
If you are having a hard time acquiring the funding you need for a small business loan, you should take a look at the type of collateral you have. A lot of small business owners will front their home as collateral to secure the loan. Property is always great to use as it does have a lot of value, but it's risky to do so as you can lose your home if you default on the loan. Take a look at other types of collateral you can front, such as business assets as they only pose a risk to your business, not your personal credit or personal finances.