are a valuable tool for small business owners to help with the purchase of equipment and inventory, refinancing debt, and handling day to day costs. But what do you need for a business loan to be approved? In this post, we’re sharing a few tips will help you prepare before applying.
1. Have a Business Plan Prepared
When proving to a lender that your business is legitimate, credible, and worthy of funding, the first step is presenting a business plan that provides all the details. According to the Small Business Administration (SBA) there are two main categories for business plans – traditional and lean startup. Typically, lenders prefer traditional plans which are more comprehensive.
2. Know How Much You Need
Different types of loans will have their own unique requirements, along with their own limits for how much money can be lent. Before applying, determine how much money you'll be requesting, along with exactly what you'll be using those funds for.
3. Look at Your Credit History
As a business owner, you're representing your company. That means that when you apply for a business loan, especially when your business is new and doesn't yet have a credit history, you'll need to prove that you're responsible. Your personal financial history will show lenders whether you're someone that they can trust to repay a loan.
4. Understand the Requirements for a Business Loan
Each lending institution will have its own set of requirements for small business loans. Be sure to take time to research your options to be sure you're getting the best deal. Looking at the requirements of each of your options will also help you determine which loans you qualify for so that you won't waste time on options you won't be approved for.
5. Be Aware of the Cost of a Loan
A common mistake that many small business owners make is underestimating the cost of a loan in the long term. When researching loan options, look at the length of the loan and the interest rate to determine your monthly payments. Always read the terms carefully to become aware of any fees and penalties you'll face if you miss payments.
6. Gather Your Materials
While you're following the tips above, you should also be collecting the paperwork and materials you'll want to take with you when meeting with potential lenders. Among those materials, you should have the following:
- Business licenses and permits
- Bank statements from at least the previous 4 months
- Balance sheets
- Tax returns, both personal and business
- A copy of your commercial lease, if applicable
Visit Fremont Bank
to learn more about the small business loans available to you.