Getting a loan to finance your business can be the start of something great. Believe it or not, most successful businesses started off with a loan one way or another! On the other hand, it can also prove to be not only a difficult task but also a big mistake if you didn’t think things through. Here’s how you can get a loan for your business – and how you can know whether it’s a good idea or not.
Before the loan – your image and purpose
Business loans are notably different from, say, car or housing loans. Why? Well, for business loans, the bank will want to feel as if they’re lending to someone who will make good use of the money as opposed to jumping into the world of business without forethought.
Hence, before asking for a business loan, you’ll want to make sure that your business idea is a sound one and that you have a good model to follow. It’s not just about your ability to pay it back – the more lucrative and thought-out your business sounds to other people, the higher your chances of getting that loan.
Likewise, you or your partners should have some experience with running a business or, at the very least, managing one in some capacity. Sure, it’s not a necessity, but it’ll help a ton – the whole point is to come off as someone who knows what they’re doing and won’t just run themselves into debt they can’t pay.
Also, keep in mind that not all financial institutions will be equally ready to give out a business loan. Many forms of business financing are smaller than your average loan – if you’re looking for a small loan to, say, start a carpet cleaning business, your best bet might be working with a smaller bank or an institution that specializes in handing out business loans. Getting a loan from your own bank rather than borrowing from a different one can have a multitude of benefits, but it’s not a necessity – if other banks have more attractive rates, don’t hesitate to get in talks with them.
Getting your paperwork in order
On top of just having an idea that sounds good and presenting yourself and your business partners as level-headed people, you’ll need the right paperwork to back you up.
For starters, you should have a detailed business plan of what you’ll be doing and how it’ll get you the money to make regular payments to the bank. If necessary, do private consultations before talking to the bank to work on this plan and ensure it’s really as sound as you think – more than anything else sans credit score, this will likely play a huge role in the bank’s decision.
You’ll also need signed guarantees, income projections, your credit score and detailed written-down experience of any businesses you’ve ran successfully or not-so-successfully.
As you can see, getting a business loan is no walk in the park, but it’s doable with the right preparation. Moreover, if you have the right business idea, you’ll pay the bank back in no time and it should be smooth sailing from there on.