Business Loan Preparation: Before you apply for a business loan, you want to make sure you have a few things in order. First, understand that lenders are skittish and they don’t really like lending to startup companies. If you need a lot of money, in this economic climate, you’ll want to start approaching angel investors. But, if you’re determined to get a bank loan, here’s what you absolutely must do if you hope to stand a chance against the bank’s loan officer.
Have Your Goals In Order
First things first. Don’t walk into a bank without having your business goals in order. Know what the business is about, how it will make money, be able to explain the purpose of the business and how it will make money in one sentence, and show that you bring experience to the table.
Lenders tend not to lend money (at least in this economic climate) to beginners with no track record and no assets. It’s just too risky.
Check Your Credit Score
Check your credit score by going to annualcreditreport.com. This is one of the only places you can get a free credit report. Check for any derogatory items on your report and work to eliminate them. If you see any mistakes on the report, complain to the credit bureau and get them to remove them.
You’ll want a score above 700, and ideally above 720, for a business loan. The higher, the better.
Outline and Identify The Purpose For The Money
What will you use the money for? You can’t be vague or non-descriptive when explaining this to the bank. In fact, the lender will expect you to have a business plan laid out that details who the officers of the company will be, what you’ll use the money for, how much you need, and profit projections.
Without this information, you’re dead in the water.
You should have some type of collateral for the loan, especially if you’ve never done business with this bank before. Ideally, you’ll be able to put up enough collateral to cover the entire loan amount. Most banks will want to see substantial assets, sometimes in excess of the value of the loan. Crazy, but this is what most lenders want to see.
Have a Down Payment
Coming up with a down payment shows that you are willing and able to contribute to your business. A good small business cash advance can help you come up with the money if you don’t have enough in your savings account.
Get a Co-Signer or Guarantor
If your credit is dinged up a little, you may need a co-signer or guarantor to help you qualify for the loan. The guarantor is a person whose credit is stronger than yours, and will assume responsibility for the debt if you cannot pay.
Usually, this person will be involved in the business somehow, but he or she doesn’t have to be. The individual just needs to be able to assume the loan if you cannot.