One of the biggest hindrances that people face when starting businesses is; lack of capital. This hindrance can be easily eliminated if you understand what banks look for when selecting borrowers. You can make it easier for yourself if you understand what you want to do with the loan in the first place. Here’s everything you need to know about asking your bank for a business loan.
1. Understand why you need a business loan
You must ask yourself why you need a business loan before you approach your bank. Most people have more money than they think. Remember, it is possible to start a business with little to no money. Furthermore, banks aren’t the only lenders. You can borrow from friends, take out a short term loan i.e. a payday loan, turn to a pawnbroker, etc. In a nutshell, there are many options available today when you need a loan. Ideally, you should take a business loan when you really need one.
For instance, a business loan is recommended in instances where you don’t have access to any other funding sources. Most importantly, you must have a business idea. A business loan should also be used for starting/funding a business only and not any other purposes. It’s recommendable to take a business loan to start a business or boost the working capital of your business/grow your business.
Banks actually look at your need for a business loan. If your need is important i.e. you want to start a business/ boost working capital or expand, your chances of getting a business loan will be higher. The idea here is to make sure you are asking for money to engage in a business activity that is bound to generate income. Banks are interested in funding borrowers who show promising signs of repaying their loans so, make sure you convince your bank you need a business loan.
2. Prepare a solid business plan
To convince your bank to give you a business loan, you need to prepare a solid business plan. Banks look at the viability of your business when deciding whether or not to give you a business loan so, make sure you show your bank how you intend to setup and run your business profitably. To do this effectively, the money you get should be put into productive use. For instance, your business plan should state that you intend to spend the money to buy stock for your business as opposed to buying brand new furniture for your office since such spending doesn’t generate revenue. If your business plan shows great potential for making money, your chances of securing a business loan are high.
3. Find the right bank
Sometimes it’s just about finding the right lender. Different lenders focus on different aspects of business. Some banks focus on giving business loans while others focus on personal loans. To increase your chances of getting a business loan, you need to go to a bank that focuses on giving the type of loan you are looking for. Such banks need less convincing. If you have to change banks, do so by all means. The right bank for you is one that offers business loans. Furthermore, you are bound to enjoy other benefits such as lower fees/interest, expert advice, etc. since such banks understand the needs of entrepreneurs more and are interested in seeing you succeed.
4. Ensure you have whatever it takes to qualify
To qualify for a business loan or any other loan for that matter, you have to meet certain requirements. For instance, some banks require businesses to attain certain annual revenue figures before business loans are granted. Some business loans may also require collateral. Banks also require certain documents before they disburse business loans. For instance, if you already have a business, your business’s financials i.e. financial statements must be in order. To avoid wasting precious time, find out what it takes to qualify for a business loan before you apply for one.
To secure a business loan, you need to make sure you don’t give your bank any reason to deny you the loan. First and foremost, make sure you need the business loan in the first place. Your business plan also needs to be solid. Banks can identify viable business ideas at a glance so, makes sure you do your homework. Your focus should be proving that the money you will receive will be put to good use i.e. it will generate income allowing you to repay your loan with ease. It’s also important to find the right bank i.e. one that specialises in funding businesses. Lastly, you need to make sure you qualify for a business loan before you apply otherwise you’ll waste precious time.