Preparing for a loan can be particularly confusing for first timers and young people who have just ventured into one business or the other with the hope of embracing success. Financial consultants deal with many new establishments to help them find the loan structure that will be most beneficial to them. Listening to financial consultants can be a burst of inspiration and a moment of epiphany.
Loans cannot be obtained with only good ideas
It is fine to have a great business idea, financial consultants say, but have it in mind that if you need to get a loan, you will need something more – in this case, important financial documents. These documents usually requested by lenders are to help them understand who they are dealing with and the goals of the establishment.
Lenders will invest more in people whose goals align with theirs
Every organization or lender has a goal which they hope to achieve. Lenders who are profit oriented will be keener at evaluating your revenue documents, profit, and loss. Other lenders, with a different orientation, will be more interested in how your company or organization will impact on the society.
There is a checklist for startups who seek loans
Several financial consultants have been talking about how to prepare for loan application especially as it concerns budding businesses. Their recommendations have been compiled and below are the steps to take to seek a loan.
1. Write down your business idea
This has to be the first step by default. Of course, you cannot talk about seeking for a loan when you do not have an idea to justify your request. A business plan is a guide – sort of a business map – that will keep you in line as you make the entrepreneurial journey.
Your business plan should have certain contents
There are some key questions that your business plan will need to answer and they include the purpose of your business: what your business aims at achieving, how your business can be of help to the people and how your business is different from other competitors. There is software out there that can help you produce a very good business plan. Financial lenders will not fail to look at what they are financing.
2. Keep your credit score high
Your personal credit has everything to do with your loan. The right practice is that your company will need to have at least two years operational history before they qualify for a loan. Banks, in particular, will go through your credit score for these years to see how responsible you have been with money.
Different lending institution will require different credit score
Generally, a credit score of above 600 is considered as good. However, to guarantee your shot a loan, you will need a higher credit score – between 700 and 800. Also, your monthly income should be far more than your annual debt payment.
3. Ask for the appropriate amount
You cannot predict the appropriate amount your business need if you do not have a good business plan. Small businesses usually fall into the trap of asking for too little which in the long run leads to a shortage of working capital.
4. Look for appropriate lender
There are different lenders out there with different rules; commercial banks, non-bank lenders, regional lenders, and microlenders. Properly analyzing the different lenders will help you arrive at the one that will best satisfy your business need. Crowdfunding is a new finance sourcing option which you can also give a try.
- Financial consultants can provide useful tips when taking up loans.
- New businesses have a hard time to prepare for loans.
- The good business plan is not enough to secure a loan.
- Different lenders will request for different documents.
- A business plan serves as a business guide.
- A business plan has to address key issues in the business.
- High credit score will increase your chances of getting a loan.
- When seeking for a loan, ask for a sufficient amount.
- Different businesses will require different lenders.
- Crowdfunding is an exciting new way of raising funds for your business.
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