This post may contain an affiliate link. We are letting you know because we value your trust
Assuredly, every small business needs some form of financing – usually in the form of small business loan – to operate. There are always staff salaries to be paid, overhead cost to offset, marketing cost to cover – the list is endless. It would be impossible to cover these costs if there isn’t some form of financing.
Admittedly, obtaining a small business financing can be somewhat difficult. If you just started your business and applied to a bank for a loan, you will most likely be turned down. Banks generally favour established businesses over newly found ones. Even worse, some lending institutions that favour start-ups still turn down a lot of loan application. Nobody fears losing money – even banks!
One fact we have established thus far is that the odds aren’t exactly stacked in your favour when trying to secure a business grant. But that doesn’t mean you have lost out already. The secret here is putting in quality time to preparing your application.
So, before you submit your application for a business loan, first do this:
#1. Determine Your Reason for Needing a Business Loan
Hold it there! What else would I be needing a business loan for if not to finance my business? Bet that question popped into your mind the instance you read that subheading.
Here is the thing: if you can’t clearly prove to a lender that you have already thought out how the borrowed money would be used, you have lost the battle already.
The easiest way to tackle this task is to prepare a detailed business plan. When drafting a business plan, make is as detailed as possible. Account for the following expenditures
- Office space
- Product development
The more concise you are, the better your chances.
#2. Prepare a Proof that Demonstrates Your Ability to Repay the Loan
No lender likes lending out money and not getting it back. In fact, this is the chief reason why commercial banks turn down small business owners.
To get past this stage seamlessly, prepare a projected income report which details the revenue your business will be generating in the coming months. The goal is to prove to the lender that your business can break even as quickly as possible.
#3. Determine the Type of Business Loan That Will Suit Your Business Needs
There are different types of business loans available to small business owners. Your choice of a loan will depend on your business needs. Here are some of the common types of loans.
- SBA loans: These are basically government-backed loan, and can be obtained from any commercial bank. Ideal if you are looking to get a working capital at low interest.
- Small business term loan: Ideal when looking to expand your small business.
- Equipment loan: If your business depends on heavy machinery, this loan is your best bet.
#4. Determine What Will Serve as a Collateral
Lending institutions are more willing to give out small business loans to applicants with a collateral than those without. You needn’t necessarily use your home as a collateral.
A car, 401(k) retirement savings, personal belongings can all serve as a collateral.
#5. Put in Your Own Money
Putting in your own money into your new business clearly proves you have faith in the business. This is exactly what lenders are looking for: confident start-up founders.
That out of the way, here are some of the options for securing financing for your business.
Till tomorrow, banks will still be the go-to hub for borrowers. But you will have to be persistent because the first 3 to 5 banks you approach will very likely not respond favourably.
The key here is ringing up as many banks as possible. Persists until something meaningful yields.
#2. Peer-to-peer Lending Sites
Peer-to-peer lending sites help a borrower raise money for a business project by pulling together resources from individuals who wish to invest their money. The upside to peer-to-peer lending is that most programs don’t require a collateral of any sort.
#3. SBA Loans
SBA is there to help small business owners like you get access to small business loans from banks.
To improve your chances of securing this type of loan, have a detailed business plan up your sleeves.
Learn more about SBA to know if you qualify for one.
#4. Microfinance/Community Banks
The business model of these types of banks makes it easy for them to lend entrepreneurs loans without a collateral. So, this would be a great option if you have little or nothing to put in as collateral.
You don’t necessarily need to have a collateral to secure a business loan. With a little bit of creativity and persistence, you could secure a favorable loan, large enough to give your business a lift.