Are you a small business owner in need of financing, but the thought of securing a loan makes your head spin? You’re not alone. Finding proper financing for your business can be stressful. But, it doesn’t have to be if you’re prepared and know what to expect.
Here are a few tips to help set you up for success:
- Have a solid business plan. A lender needs to feel confident that you have a road map for future growth. Make sure to include management team information and experience, your target market and product/service differentiator, competition and economic considerations, capital and equipment needs, and financial projections. You need to know your business plan like the back of your hand.
- Know how much financing you need and how you will use the money. A prepared business owner knows how much he/she needs and for what. The loan request should be specific and should track with your business plan.
- Review your credit score. Lenders look at your personal credit history to determine your attitude towards credit. Most lenders are looking for credit scores above 650 minimally and ideally scores above 680. Be ready to explain any bumps along the road to your lender.
- Select the right lender. Do your research. Your lender doesn’t have to be a bank. There are plenty of local resources out there if you do your homework. Consider non-traditional, non-profit lenders, talk with trade associations and contact the U.S. Small Business Administration (SBA). Make sure you understand all the terms and fees associated with your loan as well as the annual interest rate.
- Be willing to personally guaranty your loan. This is a testament to your belief that your business will succeed and lenders will be repaid. In addition lenders typically like to see equity in a project equal to 10% – 25% of the loan amount, depending on what is being financed.
- Be transparent with your lender. Make sure you fully complete your loan application. Leaving information out can lead your lender to question what else you failed to mention. Also, provide information requested by your lender in a timely fashion.
In many ways, applying for financing is like interviewing for a job. Make sure you’re prepared, put your best foot forward, and the rest is history.