It’s impossible to take your small business to a high level without enough funds. This is because you will not be able to increase your inventory or buy advanced equipment. Even if you were to rely on your personal savings, they would not add up to the amount of money that you need. A loan would therefore come in handy when you need to grow your venture. However, most entrepreneurs are usually overwhelmed by the process of applying for a private business loan. Majority of loan applications are actually declined by the banks and other lenders because the applicants don’t follow the due process to the latter. Here is a step by step guideline on how to apply for a private business loan.
1.Determine How Much Money you Need
When applying for a private business loan, you should first decide how much money you need. The last thing you want is to apply for an amount that won’t take you anywhere. But this doesn’t mean you should overestimate your business financial needs because it will raise eyebrows in every quarter. In fact, you should first identify the things you will do with the money. Since you are still in possession of your initial business plan, you should use it in prioritizing your business needs. This will help in ensuring that you don’t steer away from your initial plan. Moreover, you will need to enclose the business plan in your loan application.
2.Find a Lender
Before you draft your application, it’s important you first look for a lender that’s willing to give you the money that you need. Fortunately, there are so many lenders both on the internet and offline. Most business owners prefer to work with commercial banks. However, such institutions have very tough rules that often don’t favor small businesses. But that’s not the only solution. You can still borrow money from non-bank lenders and geographic region lenders.
3.Confirm you Meet Lender’s Requirements
Every lender has minimum requirements that must be met by the borrower before the loan application is approved. Most entrepreneurs rush into filling an application before confirming that they indeed qualify for the loan. In most situations, the lender will demand that you apply for financing after your business has been in operation for more than a year. If your business is a few months old, you have no option but to wait until a year has lapsed. Besides that, your business must have a good credit report. If you have some pending debts, you should clear them to boost your chances of qualifying for the loan.
4.Prepare Financial and Legal Paperwork
Brick and mortar banks normally have a long list of documents that must be enclosed in a loan application. This is definitely because they issue huge amounts of money. They must therefore carry out due diligence before giving you the amount you have requested for. In a nutshell, they want to be a 100 % sure that you will be able to pay them back. Some of the crucial documents that you need include:
- Your CV
- Articles of incorporation
- Business licenses
- Commercial leases
- Copy of national ID or driving license
- Business bank statement
- Balance sheet and income statement
- Business and personal tax income returns
Non-bank lenders on the other hand are very lenient. This is probably due to the fact that they do their business on the internet. Regardless of that, you must sign a legal agreement that elaborates on the terms and conditions of the loan.
5.Present your Collateral
Majority of lenders will only approve your loan application after you have presented your collateral. This helps in ensuring that they have a way of protecting their interests if you default in keeping your promise. However, small businesses rarely have tangible assets that can e used to secure a loan. The good news is that you can rely on Invoice Factoring by using the invoices of payments that are due in the near future. This is because the lender will see that there are some customers that are yet to pay for the services or products that you offered them.