How to get funding for a small business
When it comes to securing funding for a small business, business owners have more options now than they ever did in the past.
This not only means that financing is more accessible, but that it is now easier to find better options that fit the needs of small businesses.
But, while better accessibility and increased options are good for businesses in need of funding, applying for a loan is not something that should be entered into lightly.
So, to help you, here are a few things you need to consider before beginning your search for a small business loan.
Develop a business plan
Not every lender is going to require a formal business plan for you to apply for financing, but it can help to have one anyway. With your business plan, you will be able to demonstrate that you are knowledgeable about your industry and have a plan to make money and pay back the loan.
Along with that, you will be able to explain the purpose for the loan and how it will add value to your business. A business plan might not be a necessity for all loans, but it can increase your chances of approval.
Get your paperwork ready
Every lender is going to have their own requirements when it comes to the types of documentation they’ll want to see. Most will require paperwork such as bank statements, your business’s financial statements, and tax returns.
If you don’t have these documents ready, it could cost you time. Having them with you when you go to apply will mean that you can get started on the approval process sooner. If you need the funding fast, coming prepared with the documentation on-hand can make a big difference.
Research your options
As we mentioned before, there are a lot of options for acquiring funding. If you want to make sure you are working with the right lender and utilizing the best lending product for your business, you will need to research your options.
Besides traditional bank loans, you can get loans from credit unions in addition to a number of alternative lenders who now offer financing to small businesses. Learn everything you can about the lender, their requirements and the different fees and charges before applying for a loan.
Check your credit
Your credit score is an indication of the creditworthiness of you and your business. Before looking for a loan, get a copy of your credit report and try to resolve any issues.
If your score is low, you should also take some steps to improve your record. It might take some time, but your credit score will have an effect on the lending options that are available to your business and the terms lenders will give you on a loan.
Understand loan agreements
If you are going to find the best option for your business, you are going to need to know how to understand a loan agreement.
Take the time to learn about the different terms in loan agreements, and compare your options. If you fail to understand the terms, you could select a loan that doesn’t fit the needs of your business. Pay attention to things like the reporting requirements, the interest rates, the fees that may apply, and if there are any penalties for things like prepayment.
Your small business might need money, but you don’t want to rush into the first loan you find. By taking the time to prepare, you can make sure you get the money you need without entering into a contract that is bad for your business.
Photo by Brooke Cagle