An entrepreneur, who is wearing a suit, sitting at a desk and filling out paperwork.
Most new companies are financed with personal savings, but if you need additional capital for your business, you want to consider a business loan. The funding you receive from a loan can help with start-up costs, launching a new marketing campaign, hiring new employees or expanding into a new market. Loans can be obtained from a variety of lenders, including your local bank, peer-to-peer lending sites or microlenders.
More information on lenders and the different types of loans that are available can be found in MOBI’s module on how to finance your business.
To get a business loan, follow these 6 steps:
1. Get your documents in order
Every lender requires some paperwork to get started. For a business loan, the most common things lenders require are:
- Business financial statements
- Business tax returns
- Business plan with a budget projection
- Personal financial statements
- Personal tax return
To prepare for your meeting, ask a trusted business advisor, like your CPA, what documents lenders typically need to approve a loan for a business like yours. You may also call the bank or organization ahead of time to ask.
When you meet with your lender, verify what documents they need, ensure that yours are complete and submit them promptly.
2. Present yourself professionally
When meeting with lenders, be sure that you are well dressed and neat in appearance. When speaking about your business, be clear, specific and realistic about your goals and what you need the money for. The worst thing you can do is give off the impression that you are more “puff” than “substance.”
The best way to meet a lender is through a referral. Ask your CPA, attorney or a friend to introduce you to a lender to get off to a good start.
3. Be prepared to answer questions about your business
When you meet with a lender to get funding for your business, you’ll need to comfortably talk about your business plan, your past financial performance, and your financial projections. Familiarize yourself with this information ahead of time, so you can speak confidently and clearly. You may want to bring your accountant if you need help.
4. Know why you need the money
"I just need the money," does not inspire confidence or that you have thought it through. Do you need the money for equipment? Sales and marketing efforts? Hiring employees? Review your business plan, make a list of your startup expenses and determine how much money you will need. Be prepared to give your lender an overview of these expenses.
As a start-up, do not plan to spend money on expensive entertaining. Your lenders will be more interested in knowing how their money is being used to grow your business.
5. Be ready to talk about your personal finances
Virtually all lenders will do a personal savings and corporate credit check. Be prepared to discuss any prior credit issues or problems.
6. Propose a repayment plan
Most places have some flexibility with their repayment plans, and if you propose your own terms, your lender may appreciate that you are thinking about how to pay them back instead of just fixating on how to get the money.
One type of repayment plan is a line of credit, which allows you to borrow money as you need it, as long as you do not exceed the maximum amount. The upside to borrowing a line of credit is that you’re only required to pay interest on the amount that you borrow, and you can pay it back at your own discretion. The downside is that most lines of credit are subject to annual renewal, and if your lender decides not to renew the loan, you will be required to pay it back in full at that time.
You may also propose a term loan, which is for a specific amount and is paid over a specific repayment schedule. The interest can be variable or fixed, and most term loans are paid back within 1 to 10 years.
Additional tips:
- Consider using your suppliers and vendors as sources of financing. For example, if you need an illuminated sign for your storefront, the company you contract with to make the sign may provide financing so you can make monthly payments rather than pay cash.
- Try bartering as a way finance your business. For example, your advertisements in the local newspaper might be paid for by the bagels you make!
After You Get the Money
Getting the money is only the first step. You should strive to be a good customer so your lender will work with you if you need help later. Here are some tips to ensure that you stay in good standing with your lender:
- Stick to your agreement. Make sure you understand the requirements of your loan and adhere to them as much as possible.
- Provide your lender with regular financial statements and other required documents on time.
- Be proactive. Contact your lender if there is a problem, such as being unable to make a loan payment on time. Keep them informed on the status of your business, whether you have good news or bad.
The more prepared you are, the more likely you are to be approved for a business loan and achieve your business goals.
For more help with starting and expanding your business, enroll in MOBI’s online courses and earn your certificate today.