Attention to detail, and plenty of research and planning will make a significant difference when your business is ready to start the application process for a loan. Businesses that understand the process and are prepared with all the correct documentation are more likely to receive the funding they are looking for.
- Be extremely specific about what the money will be used for. Document your current financial situation, and how your organization is managed. Be prepared to share your forecast for growth. Banks in particular are looking for reassurance that the money loaned will be wisely used and that their investment is safe. They want to see an organized company that has realistic goals, and can provide concrete evidence of success. Their prerequisites often include a strong credit history, and a minimum period of time in operation. Don’t neglect your working capital as it is an important part of the decision making process.
- Consider your potential lending options carefully. Don’t limit yourself to one bank or other alternative lending source. Shop around for the best rates, and the most effective loan or line of credit for your business model. If you are turned down for a loan, don’t give up. It is easy to become discouraged and stop trying after one or two financial institutions decline your request. If your business does not qualify, find out why so that you can either correct the problem, or move to an alternative lending source that is more likely to help.
Often, the first port of call when looking for a loan or line of credit is the bank. Small business owners do not always trust alternative funding solutions, as they may believe them to be risky and expensive. In many cases this is due to a lack of understanding about how alternative financing actually works. If your credit score is less than stellar, funding from an alternative source may well be the option that will most likely work for your company.
Solutions like invoice factoring can be helpful when your business has outstanding accounts receivable that can be sold to a factoring company in return for immediate working capital. Since the invoices are used as collateral, the length of time in business, as well as current credit score is not critical in the decision making process. This can be an ideal solution when traditional forms of financing are not available. Factoring your accounts receivable can also help your cash flow and put your business in a better position to apply for a traditional bank loan in the future.
No matter what type of financing your business is looking for, it pays to be informed and understand the process.