Things You Should Consider While Applying For A Business Loan
If you do not want to be an employee and want to be your own boss, it is better to start a business of your own. You must have heard this statement multiple times in your surroundings or in your circle. People who are now running a stable business will tell you better about the initial struggles they had to face and surpass in order to get to the point where they are now today and still making efforts to advance further and achieve excellence. Starting a business demands not only your time but also finance because you cannot run a business without having an appropriate amount of money to cater to your needs.
If you feel that your finances are not fulfilling your requirements and you cannot step back at a point where your business is in its initial development stage, there is always an option of availing a business loan, and you might have different thoughts regarding loan and business loan. Our thoughts have a great impact on our actions. The idea of availing loan might burden you that you will have to repay it, which obviously one has to but once think of it as an act of refinancing a business loan. Entrepreneurs or people who tend to set up their own businesses are no less than heroes as they put their time and money at risk every day and make day to day efforts to sustain their set up and contribute to national income.
What is the difference between a loan and a business loan?
A loan in terms of finance is lending money by an individual, organization, or group of people to be paid back with interest. The borrower incurs a debt that has to be paid back in the form of interest along with the principal amount borrowed, whereas a business loan is solely intended for the purpose of business.
What you acquire to obtain a business loan?
Applying for a business loan is not that complicated as it appears to be. Let’s have a glance at the steps that can aid us in an effective application of business loans.
- Business Plan
If you want your lender to lend you money, he needs to be sure that his money is being used for the purpose you are claiming for, the kind of business you are running, and needing help. Be sure to approach your lender with an appropriate business plan. Providing a clear insight that you are running a reliable business, your knowledge, and skills that can help your business grow into something boundless, your goals, targets, and a brief summary that can serve as your vision to the lender’s eye.
- Credit score/financial statements
Any lender before lending you money will check if you are really able to make enough money out of your business to pay him/her back the amount you are borrowing from them. You need to prepare a financial statement that is clearly stating your present and past expenses allotted to your business projects. Do not forget to include your cash flow statements, income, and balance statements of past three or five years and your estimate for these statements with reference to the next few upcoming years keeping in mind all the seasonal changes your business can endure.
- Purpose and amount of loan
It is important to have clarity of what you need and what you have planned to do once your need is fulfilled. After clearly stating your business plan and financial statement, it is essential to present your purpose and amount of loan on paper and in person, making the lender see where the money is going to be used. You can also convince the lender by stating the types of equipment you need, the market strategy you are going to implement. A person who is lending money will want to be satisfied by all means that his money is going into the right hands that can use it wisely and can repay it in a given deadline.
- Your Personal Credit History
If your business cannot generate a credit history of its own in its initial stages and you desire to borrow amount, then you need to come up with something convincing enough that lender shall put their trust in, to lend money. Your personal credit history can be evidence of help for the lender that you are a financially responsible person; also, they may insist on seeing your tax statements. So, before you apply for a loan, make sure that your personal credit history is stable enough. If not, then you can delay the idea of a loan till you top up your credit history with a better face value.
- Collateral Capacity
In case you are choosing a kind of loan that demands to put down some form of security, it will be better to be aware of your capacity to put down some collateral. You must know the clear value that you can tell the lenders and offer something concrete to secure the loan. Be sure not to go beyond the capacity of what you can manage to secure the loan, or else it might make you vulnerable to further loss.
- Timeline to payback
Before applying for a loan, it is mandatory to calculate the amount of time you are going to need to pay it back along with interest. It is suggested to keep the time frame as small as possible to avoid a huge amount of interest that you will incur to pay with the principal amount you are going to borrow. You can shorten the time period of your loan payback by making effective business strategies that will help you generate a better monetary revenue that can help you suffice your demands and also aids the loan payback process.
It cannot be assayed that which of these aforementioned factors are important and which can be ignored when it comes to your business as weighing criteria might differ with different lenders. It is important to know thy lender before you apply for a loan, and for this purpose, you will need to research every possible option that might seem appealing to you for your business loan. At times small union banks offer much better proposals as compared to large banks making ravishing offers. Also, you need to have clarity of thoughts while documenting your proposals, and if your lender finds something missing in your written document, it might create a hindrance for you acquire the business loan that you desire.