Sarah imagined. She had a dream: to open her own bakery. She owned none of these things: the recipes, the passion. She lacked the funds. She was rejected by banks. Online lenders looked too risky. So disheartened, she almost gave up. Then luck struck, and she found a local credit union that saw her as a worthy person. They helped her small business loan. Today, “Sarah’s Sweets” is popularly known in the community.
And despite some tales, small business owners face catch-22 situations like these. Getting funds for starting or expanding is never going to be easy. Different types of loans are available for a customer to consider.
This guide takes the reader through every step of the process, as this one explains how to successfully get a small business loan to fund the desired venture. Your road map toward funding success!
Understand Your Funding Needs
Knowing the amount of money you actually need is crucial. Many businesses fail because they don’t get sufficient cash at the start. Don’t let this be you!
Determining How Much Capital You Need
Start with what your startup costs are. How much will you pay for equipment? Rent? Supplies? Next, consider operating expenses. How much will you spend, generally, on salaries and utilities each month? Finally, project your growth. Where do you want to be one, three, or five years from now?
Use tools that can lend a hand. Financial forecasting software makes these projections easier. It allows one to plan for the future.
Distinguishing Debt Financing and Equity Financing
A debt is a loan that one has to repay with interest. Conversely, if one sells a portion of his or her business, that means he sells equity to investors, which have no obligation to pay them back; however, they own part of an individual’s company.
An example could be a coffee shop. They borrowed funds to acquire equipment. They own all the profits but must repay the debt. A technology startup could sell their equity to potential investors. They would not have any loan payments; however, they would have to share the profit and control.
Creating a Solid Business Plan
Your business plan had better be good. There are few things lenders want to see more than that you have actually given it thought. A good plan means you have made a serious effort at preparation.
Include a market analysis in your proposal. Customers? Competitors? Prove that you understand your market. Finally, provide a detailed financial forecast. Project your income and expenses for the next few years. Encouraging lenders to know that, obviously, you can repay the loan.
Exploring Small Business Loan Options
There are types of all loans. Each comes with a different value of pros and cons. Get your loan tailored up in your business name.
Traditional Bank Loans
Banks are typically where people turn for loans. Most will offer a lower interest rate than other lenders. The problem with banks, though, is that they are very hard to get approved by. They usually also want lots of collateral.
“Building a relationship with your bank is crucial,” says banking expert John Smith. Talk to your local bank, get to know them. This may help improve your chances of approval.
Prepare before you go. Get financial statements and your business plan ready. This shows seriousness and organization.
Conclusion
Getting a small company loan might seem like scaling a mountain and taking a leap of faith. But with planning and preparation, it can happen. Assess your needs for funding. Know the different types of loans available for you. Carefully write your application.
