Key to acquiring a small business startup loan is showing potential lenders that their money is in capable hands.
Creating a business plan (typically accounting for your first year as a business) will show that you’re realistic with how you plan to spend the money, thereby increasing your trustworthiness as a borrower.
Prior To Applying
It is essential that your credit is optimal before you apply for any loan. Better credit not only increases your odds of getting approved, it improves your loan terms (such as a lower interest rate). Visit www.annualcreditreport.com to acquire free credit reports from the three major agencies, and try to straighten out anything negative.
Make sure the changes have taken effect before you proceed with a small business startup loan request.
Keep your credit in good shape. If you’re short on money, pay the minimum due by the last possible due date… but don’t push the vendor into placing negative information on your credit report. If you must juggle, keep meticulous track of what and when to juggle, or call the vendor to make payment arrangements.
Consider Alternatives
With sufficient collateral, you may qualify for secured loans. List significant collateral — home equity, property, stocks, vehicles, even expensive jewelry — and have them valuated. A secured loan provides advantageous terms, like a lower interest rate and a longer term. Unsecured loans of any material value are extremely rare.
An investor can be a great option for a small business startup loan. Talk to everyone and ask them to ask around until you find people with money that are interested in your concept. You will have to be more flexible, but you can leverage your business control and a percentage of profits in exchange for business financing.
Consider other alternatives such as a home equity loan or borrowing from friends or family. If you know someone with excellent credit, ask them if they would consider co-signing. Whatever arrangements you make with friends or family, put them on paper to prevent potential disputes later.
Borrowing money from friends and family can often turn relationships sour. Consider this before turning to family for financial assistance.
Acquiring A Small Business Startup Loan
The place to start is a bank with which you already have a good history. Call in advance to ask what they look for when evaluating prospective applicants for a small business startup loan. Each bank has different standards for determining applicant worthiness and if they’ll give you advice up front, you can have everything in perfect order before you approach them.
Sometimes it takes repeated attempts from different banks to get approved, so don’t lose heart should you not get approved. Banks can use any of the three major credit agencies to acquire your credit score, which may differ with each. Also, with the differing standards for approving a loan, one might not think you’re a good candidate for a small business startup loan but the next might decide that you are.
If You’re Turned Down
The Small Business Association might be able to unite you with a lender as they have a variety of loans and in fact specialize in small businesses that have been turned down elsewhere. You may even qualify for a bad credit loan assuming you have a certain degree of collateral.
If you’ve turned everywhere else and been rejected, you can use credit cards, although the interest rates are much higher. Call your bank and negotiate better rates or apply for a card with better terms. Investigate business owner credit cards that may carry an annual fee but provide better rates.
And remember that bonuses such as points or miles generally add to the annual fee or interest rate…so go bare bones and avoid the fringe benefits.
