June 22, 2022
It is not easy to secure a startup loan, but it is possible. Below, we will cover and provide examples of what you need to do to plan for the loan application process, what to do if you are denied, and what options are available for alternative financing.
if you are starting a company planning is a crucial part of a successful loan application. We outline some of the steps you’ll need to take:
Your business strategy will make or break your application for loans. The following elements would be part of every successful business plan:
A successful business plan should make it simple for your lender to accept and send you funds for your proposal. It is always recommended that new entrepreneurs contact local chapters of business organizations, such as SCORE or SBA regional offices, to get help with writing and improving their strategy to get the business plan up to speed. Business owners are also encouraged to consult a CPA for assistance in planning or updating financial forecasts.
You should be prepared, or both or any combination of the three, to put up collateral, make a personal guaratee or have a cash down payment. You may be required to use personal properties, such as your house, cars or savings, since you may not have business assets to pledge as collateral, and/or offer a personal promise that you can repay the loan in the event that the company can not. Moreover, with a 10 percent or more cash down payment on the loan, these pledges can be combined. Startups are risky, so banks like to see that founders, so to speak, have some skin in the game to minimize the likelihood that if the company fails, their money will be lost. So if you’re asking for $200,000, a borrower might expect you to pay $20,000 of your own loan money.
The mistake of not correctly calculating how much money they need is made by most new entrepreneurs. Create a comprehensive list of what you plan to use the loan to pay for and how much each item on the line costs to combat this. You need to be as accurate as possible. For example, if you intend to buy inventory, explain the exact type of inventory and how many units of each type you will need. In your calculations, you can also provide the price per unit. As it will help your application get accepted, be sure to share this list with your lender.
Prior to applying for a loan, get your company registration, licenses, and permits in order. You will need to file these licenses, permits, and registration with your state government and pay for them. Normally, online, you will fill out these applications.
When you apply for a loan, never underestimate the strength of an established partnership. A banker who knows that you will be all the more likely to work hard to get your application accepted, or press for exceptions from their committees. It is more ideal if you start with the bank or lender they are already using. If that’s not an option, see if via a mutual connection you can get referred to another lender
In your business plan, you would want to provide a thorough overview of the related industry and management experience of your business partner and yourself. To your lender, you need to make the case that you and your partners are willing to start and expand this new company. To support this for all principals of the new company, you should prepare resumes. Get referrals, if possible, from former colleagues or other members of the group who can talk about your specific experience.
Your bank or lender will want to take a look at your personal credit report because you don’t have a company (yet). Self-check your credit report and take care of any issues first. Not only do banks like to see borrowers with strong credit ratings, but also borrowers with a combination of credit and loan accounts like credit cards, loans, mortgages, etc, and a credit history of several years. In deciding whether you can even apply for financing, your credit report would be a major factor.
Ask your banker or lender why if you are rejected. Most banks are more than willing to share the reasons why the application for your business loan was denied. The reasons for your denial are in certain ways fixable, anything like a bad business plan or a lack of collateral can be remedied.
In other situations, consider asking your lender whether you are eligible for other forms of funding, such as contract financing, equipment financing, or accounts receivable, when the solution is not so easy. Perhaps, if you get a contract from a customer or once you commit to buying some equipment or vehicles, your bank can loan you money. Finally, think about finding a new lender or bank. Just because your loan application doesn’t fit into the lending portfolio of a bank doesn’t mean your application will not be accepted by another bank. It’s often a matter of finding a bank that would like to partner with borrowers like you.