Whether you’re starting a new business or trying to inject capital into an existing one, securing a business loan is a critical step in the success of your business. While getting a business loan is fairly common, it’s not always easy to get approved for one. Here are a few tips to keep in mind when you’re ready to apply for a loan for your business.
1. Get the Books Ready
Before you start applying for business loans, it’s a good idea to visit with your CPA first. Have your accountant or bookkeeper get your books in order. You’ll need financial statements like the balance sheet and income statement before you can finalize a loan. According to Forbes, lenders prefer financial statements that have been audited by a CPA instead of just your own internal accounting documents.
2. Gather the Details
When you apply for a business loan, the lender will ask for so many pieces of information about your business. You’ll need to give them the legal name of the business, the type of business entity it is, where it’s registered, articles of incorporation, the tax ID, and other items. Personal information about the founders of the business, tax returns, and other items will be requested. Gather any document like this that you can think of in case the lender asks for it when you apply.
3. Determine the Best Type of Loan
Figuring the best type of loan is critical in your success. You could obtain a fixed term loan, a line of credit, AR financing, or some other type of arrangement. Ask yourself why you need the loan and then try to choose a loan that matches those needs the best.
4. Understand the Key Terms
Before agreeing to a loan, it’s important that you analyze in detail the key terms of the loan. What interest rate are they charging you? Are there any prepayment penalties? Are you personally guaranteeing this debt? Make sure you understand every last part of the terms before you sign on the dotted line.
5. Check Your Reputation
Lenders that are considering lending you money will do their homework on you. This includes looking at your reviews online. Do whatever you can to improve those and clean up questionable reviews before applying.
6. Consider Collateral
When choosing a loan, think about what you can offer the bank to secure it. They’ll often want to secure an asset like real estate, inventory, or accounts receivable. Have something of value to offer them.
7. Don’t Give Up Too Much
In some cases, you might be desperate to get a loan for your business. Don’t agree to give up too much, just for a temporary solution to your issues.
Regardless of what loan you ultimately decide on, do your best to pick something that you understand. Finding that perfect loan could make all the difference in your success and failure as a business. Once you secure funding, you can get back to building your business into a success.