A lot of entrepreneurs struggle when trying to figure out how to get a small business loan. With these five tips, you’ll improve your chances.
Do you know how to apply for a business loan?
It’s a question that trips many new entrepreneurs up. Having never dealt with the business arm of a bank before, you may not realise the requirements they have to secure a loan.
This can lead to rejections, which makes it even harder to get a loan.
Of course, you don’t want that to happen. A small business loan can do wonders for your business, as Michael Baker discovered:
Michael is the latest in a six-generation line of decorators based in Queensland. He found himself in need of funds after several builders delayed payments for work he’d completed.
In need of extra funding, he applied for a small business loan.
The loan allowed him to stabilise the business during a difficult time. And after a period of decline, he’s managed to start growing his business again with the hiring of two new people.
Failing to figure out how to get a small business loan would have meant the end of Michael’s business.
Maybe you find yourself in a similar situation. If so, you need to get your application approved quickly so that you can move forward.
These are the five tips that will help you do it.
Tip #1 – Know the Reason and Amount Ahead of Time
The reason for the loan is one of the first things that a lender will want to know when you apply.
You need to provide a specific reason and prove that you’ve calculated an accurate figure for resolving whatever issue that you have.
Failure to articulate what you need the loan for may lead to a lender concluding that you don’t really need it.
Furthermore, it means that you don’t know what to do with the money should you get it.
Sit down with your team and outline the specific problems you want to solve. Have a plan of action in place so that you can present it to a lender. Common reasons for getting a small business loan include:
- Solving cash flow problems, as was the case for Michael.
- Purchasing equipment or inventory for your business.
- Funding further growth.
Prepare a presentation ahead of time that wraps up your reason for the loan into a wider business plan. The goal is to prove that you’re not a risk and that the loan substantially benefits the business.
Tip #2 – Examine the Potential Expense
You can usually work out approximately how much a lender will ask you to repay over a set amount of time. Many lenders even provide calculators on their websites to help with this.
It’s crucial that you look at the outgoings when working out how to apply for a business loan.
Your goal is to figure out how much you can comfortably afford to repay each month.
A loan with a short term and low interest rate may seem appealing at first. But that short term also means higher repayments. If you can’t afford them, you put your business in jeopardy.
Examine your cash flow forecasts so that you know what you can afford. Use that information to decide on an appropriate term and to figure out which lenders can’t help you.
Tip #3 – Be Transparent At All Times
If you’re in difficult financial straits, it can feel tempting to hide your situation from lenders.
This is a mistake and it’s not how to get a small business loan.
Many lenders will want to examine your business documentation before approving your application. They’ll also conduct their own checks into your credit history and the company’s viability.
Make sure you maintain accurate books that you can present to the lender as needed. Be completely honest about your situation. Remember that a lender will likely refuse your application if they feel that you’re hiding something.
Tip #4 – Review Your Credit Score Beforehand
As mentioned, most lenders examine your credit score during the application process. If you have a bad credit history, trying to figure out how to apply for a business loan may not help.
You need to fix the issue first.
There are several services that allow you to view your credit history. These include Equifax and Experian.
Make sure you know where you stand before you apply. If you have a bad credit history, it’s worth taking steps to improve your score first. Remember that failed loan applications often get registered as black marks on your credit score. This can create a vicious cycle where every rejection worsens your score, which makes it even harder to apply for a loan.
Tip #5 – Understand the Fees
Sometimes, a loan may look like a good deal based on the marketing.
But when you find out more about it, you discover that there are several fees attached that could hurt your business.
It’s crucial that you examine the fine print and quiz the lender about any additional fees. Working out how to apply for a business loan isn’t just about improving your application.
It’s also about ensuring you choose a loan that works for your business.
There are several potential fees that you need to look out for. These include the following:
- Establishment fees.
- Exit fees.
- Fees for early repayment.
- Any monthly fees that the lender may charge.
It’s also worth looking into the penalties for late repayments to ensure they’re not especially large.
Work With a Lender Who Wants to Help You
There’s one final tip to consider when thinking about how to get a small business loan.
Find a lender who wants to help you.
That’s exactly what Unsecured Finance New Zealand offers. We offer unsecured business loans of up to $300,000.
And you don’t have to worry about how to apply for a business loan with us. You can apply via our website in a matter of minutes and we make it as simple as possible for you.
Are you ready to get started?
Apply for an unsecured business loan today and receive a response within 24 hours.
