When you first started your business, you probably had no idea how to apply for a small business loan. Maybe you didn’t need one then. Perhaps, through a combination of mostly luck and sheer determination, you managed to launch your dream, either with or without financial assistance. Now that you are wiser and more experienced, your business is ready to grow, and so are you. Or, maybe this is your first entrepreneurial attempt ever, and you’re looking for a cash infusion that will help jump start your dream.
Follow these five steps to apply quickly and easily for a small business loan and to increase your chances of getting the financing that your business needs to succeed.
1 – Fix Your Credit Score
As a small business owner, you need to be very aware of your credit score. Whether your business is still linked to your personal credit score, or it has its own credit score, this is the most important thing that banks are going to look at when you apply for a small business loan. Even a few points off your credit score may mean the difference between getting a low interest rate, or even getting a loan in the first place.
There are three credit bureaus that maintain credit scores; Equifax, Experian, and TransUnion. Each one allows a person to receive one free credit score report per year. If you haven’t looked at your credit reports recently, you can find links on each of their websites. Don’t hesitate to spend money on your credit report if you need to; getting the loan is your goal and a few dollars shouldn’t stand in the way.
Once you’ve had the opportunity to look over your credit reports, start fixing anything on them that has negatively affected your credit score. Credit card companies make mistakes, just like everyone else. Call them and negotiate to get your credit score up by removing or mitigating anything on your credit report that you can. Every point counts. Pro tip: Ask to increase your spending limit. This will increase the ratio of spending to credit, which looks better on your credit report.
If you have money to spend on a small business financial advisor, now might be a good time to do so. They can give you invaluable tips and tricks to help you maximize your chances for getting a small business loan.
2 – Update Your Business Plan
Your business plan is an organic document. When circumstances in your business change, so should your business plan to reflect those new realities. If you haven’t looked at your business plan in a while, go over everything and make sure your numbers and projections are up to date. You may have to add a new column here and there for the past year. Don’t overlook anything, because even though you may know it almost by heart, the loan officer you’re showing it to has never seen it, and you can be absolutely certain they’re going to look at every detail.
Remember all that research you needed to do the first time you wrote your business plan? Well, get ready to do even more this time around. You’re that much more experienced and that means you have a few real-world experiences that will help you present a more realistic view of where your business is. You might even be surprised to find that some of your earlier projections were higher, not lower, than you expected. That means you can reassess your budget priorities in order to even out your actual business cash flow. Maybe looking at your business plan more frequently doesn’t seem like a bad idea any more.
If you’re up to the point where you need a small business loan to grow your business, you may have a little extra spending money to hire a graphic designer to polish up your business plan. A little bit of tweaking to graphics and layout can do wonders for your professional image, and it doesn’t have to cost all that much.
3 – Prepare Your Pitch
When you are first starting your business, it’s a little understandable if you’re nervous about presenting or pitching your business plan to someone who is going to decide the financial fate of your company. The truth is, public speaking is a very common fear. But with enough practice, you will be able to confidently and accurately speak about your business.
Go over and over your business plan until you know it cold. Memorize which figures are on which page of your business plan. Write down anecdotes on index cards and practice telling them to your close friends and relatives – even if they’re the ones in the stories! Go through old emails for the answers to customer queries. At the end of the day you have to be the one who knows your business inside and out, because no one cares about your business as much as you do.
You shouldn’t need a separate slide presentation. Anything that would be in a digital presentation should already be in your business plan, graphics and all. Also, take the time to print out a high-quality version of your business plan. Your local office supply store may be able to help you.
The internet is your friend. Search for videos and articles on how to present your business plan to small groups of people. Practice what you learn over and over. Having the confidence to make your presentation to a bank representative or loan agency will also help give you confidence when you need to present your sales pitches to potential customers.
When you’re almost ready to approach banks or lending institutions for loans, practice your entire pitch with family or close friends. They might not understand the financial details of your business, but they will be able to help you in other ways, such as how to dress or other tips on presentation.
It might be a good idea to prepare two pitches: the full-length presentation and a shorter pitch that discusses only the most relevant points of your business plan. You may get a meeting or phone call with someone who can’t make final decisions, but does decide whether your loan request is going to move to the next stage or not.
4 – Shop Around for Loan Offers
The savings bank of your childhood may not be the best choice for securing a small business loan or small business line of credit. There are banks that are focused on business needs and can provide better loans than personal banks. Commercial banks should be the primary focus of your search; but that doesn’t mean they’re the only choice or best solution, only that it’s where you should start.
There are several different types of small business loans worth considering. Make sure you know your options before applying for (and of course, before accepting), and loan.
Unsecured Small Business Loan
This is typically what people think of when they think of a small business loan. A bank looks at your business’ credit score and determines whether your business is a viable candidate for a loan. Usually the interest rates on these loans are higher, because the bank is taking more of a risk by issuing you a loan.
Secured Small Business Loan
If you have large value assets, such as vehicles or real estate, you can offer these assets to the bank as collateral on a secured small business loan. Secured loans have lower interest rates in general, since the borrower (that’s you) is willing to assume some of the risk.
Small Business Line of Credit
A small business line of credit is similar to a credit card. You can borrow up to an agreed-upon amount, and only pay interest on the money that you use. A small business line of credit is good for short-term loans, where your business might need a seasonal boost of cash, or for any business that needs revolving credit but doesn’t necessarily need an infusion of cash all at once.
If you have a large amount of money due from your existing customers, you can choose to sell your existing accounts receivable at a discount to a third party, known as the factor. That gives you the cash you need up front, while they collect on the invoices that are due. If you have a time-sensitive requirement, and you can earn more money than the discount, then this might be a good way to solve your short-term cash flow problem.
Business Credit Card
Where your personal credit card is linked to your personal credit score, your business credit card is linked to your business credit score. If you have a good credit report for your business from one of the big three credit reporting bureaus, do a search online for business credit cards and select one that has a good interest rate and incentives that could help your business out. Look for cards where you can earn cash back on gas or other business-related purchases.
Remember this most important fact: you are going to them as a paying customer. Yes, they’re giving you money, but you’re paying interest on that loan. At the end of the day, you’re paying them for the use of their money the same way you rent a car, or fly on an airplane. You’re going to be working especially hard to pay back your small business loan; they shouldn’t make it harder for you.
Visit every bank within a reasonable distance from your business. You may have to travel to the bank from time to time, and spending half a day driving without making money isn’t good business sense, but a couple of hours is probably more reasonable. Bring a fresh copy of your business plan so you can leave it with them if requested. Keep track of the banks you visit, dates, names of people you meet, and so on. Make a separate spreadsheet and track all of the terms of the loans that you’ve been given. You might have to ask someone with more financial experience than you for help. That proves nothing other than you know what you don’t know, and it’s okay to ask.
Once you have figured out which bank is giving you the best interest rate and loan repayment terms, it’s a good idea to call the other lending institutions and politely decline their offers. You might be surprised (or not) to find out that their “lowest” offer can actually be a little lower. Don’t feel bad about playing them off of each other. You always need to look out for the best interests of your company first and foremost.
5 – Secure the Loan
When trying to finalize the loan, make sure you have a checklist of everything you need to submit in order to get approved. Remember, until you actually get the money in your account, you don’t have anything, so always put your best self forward.
If you don’t understand anything that is being explained, ask questions. Everyone makes mistakes, and something you thought you agreed on with the loan officer may not have filtered through to the paperwork. It happens. Also, you should have a copy of absolutely every piece of paper on which you put your signature. This is a good business practice in general.
Don’t think of securing the loan as the end of the process – think of it as a new beginning. With the new influx of cash into your business, you can get started moving your business to the next level. Open up that wish list for your business and start checking off all the things that you’ve been waiting to do. It’s okay to be excited; after all who wouldn’t be when they’re about to take the business they’ve worked on to the next level?