A small business startup takes thorough planning. You'll make key financial decisions and take care of legal requirements, and create a comprehensive business plan defining your product, services, marketing strategy and niche. Perhaps most importantly, you'll brainstorm how to finance your business. You'll likely address the question, how do you get a business loan?
Write a Business Plan
Your business plan defines your target market and unique marketing proposition. What are you selling, and what are the benefits you offer to your customer that sets you apart form the competition? It could be price, superior service, quality or location. Research your industry or market in depth to work from a position of knowledge. Look at the Small Business Administration website to get pointers on writing an excellent business plan.
Getting Approval for a Loan to Start a Business
Small business lenders each have their own forms and formulas for loan applications, but much of the information they require is the same, whether it's a bank, credit union or online lender. Before you apply for a start up loan for your small business, prepare the basic documentation.
Today's online lenders, some of whom are peer-to-peer lenders, are known for their inventive and unorthodox qualification process. This opens the door for those with lower credit scores. Lending Club offers a streamlined application process, while Kabbage has an innovative qualification process.
Be ready to provide personal background information, including education, previous addresses, and any criminal record. You'll need a resume of pertinent professional experience too.
Lenders will look at your personal credit history. Prior to applying, obtain a copy of your credit report from the three major credit reporting bureaus, to see if there are any inaccuracies that need to be addressed. Once you correct any problems, you improve your chances for loan approval.
If you have a history in small business, expect to submit a business credit report as well as a personal report. Again, be sure to review your business credit report prior to applying for a loan.
Likewise, lenders will ask to see several years of personal and business tax returns as part of your loan application.
Some loan programs require that you submit both personal and business financial statements, listing your cash flow, assets and liabilities. Personal and business bank statements may also be requested along with financial statements.
Collateral is required by some, but not all lenders. The higher the risk from the lenders point of view, the more likely collateral will be required. A sound business plan coupled with financial statements helps avoid large collateral requirements. Prepare a list of personal and business assets and property along with their values for prospective lenders.
Anticipate Questions When Applying for a Business Start Up Loan
Lenders want to know stuff about you and your business! Common questions include: What are you using the loan funds for? Are you buying capital equipment or real property? Are you using the loan funds for cash flow, or to finance receivables? Who are your suppliers? Who are your other creditors? Who is your management team? A lot of these questions can be covered in your business plan.
The small business loan application process will vary from lender to lender, but the information they want will be similar. Take the time to create an air-tight business plan and to assemble the documentation that lenders look for, be prepared to answer questions and think on your feet to get the small business loan that you need.