It’s not easy out there for small business owners. Though 65% of the new jobs created in the U.S. since 1965 have been created by small businesses, many have experienced major financial difficulties that threaten their survival. In fact, 600,000 small businesses were denied loans in 2011, and 15% of all small businesses have cited difficulty obtaining credit or small business loans, despite the fact that a quarter need them just to combat the effects of slow sales. Still, many pursue new business loans to get them through the rough patches. First time business loans can be scary, but the best way to reduce anxiety is to learn as much as you can about the process and about your prospects.
Regardless of whether you choose to work with a bank, an SBA lender, or an alternative lender, there are a few questions you’re going to have to answer.
- How much money do you need? If you’re applying for a startup business loan, it is imperative that you include at least the startup capital estimate. Be careful not to underestimate or overestimate. Accuracy is very important.
- What are you going to do with the money? The most important part of your new business loan application is a business plan delineating the designated use of every dollar you request.
- When will you repay the new business loan? Your business plan should also explain why you have reason to believe that your business will have long-term profitability. Otherwise, there will be no reason for the lender to believe that you will repay the loan amount.
- What is your backup plan? Make sure lenders know that rejection for a new business loan won’t stop you from opening your business. Portray a confident, determined personality to inspire confidence in your lenders.
It’s important for you to know a little about your personal credit history before you even draw up a business plan. After all, for a new business loan, the lender has nothing to go on except for your creditworthiness and your business plan. Before you ask for a loan, take these steps:
- Order your history. Get a few different personal credit history reports from different companies.
- Look for missing data, mistakes, and omissions on those reports. Though you may have cancelled a large credit limit years ago, it may still be on file, hurting your chances at a new business loan.
- Be ready to defend yourself. If there are any late payments on your report, know why it is there and be able to offer a reasonable explanation.
Applying for a new business loan can be frightening, but the simple process of educating yourself can go a long way in reducing your anxiety and increasing your changes at success. Remember to be persistent and confident in your search, and you’re well on your way to the loan you need. Research more here.