Finding a finance option is one of the challenges to establishing your own business. While successful companies find it easy to get loans, it’s a whole different picture for startups.
Studies say that one in four businesses faced growth limitations because they could not secure enough funding. With this, new business owners must be aware of the tips and tricks that can help increase their financial odds.
Before contacting banks and financial institutions for startup business loans, it’s wise to familiarise yourself with loan types, credit scores, lending options, and other technicalities of the financial market. By doing this, you can make better and more sustainable decisions.
5 Steps to Successfully Get Startup Business Loans
Many business ideas fail to take off due to a lack of capital. While it’s not possible for every aspiring entrepreneur to self-finance their venture, understanding the requirements of a successful business loan application is quite doable.
There are many ways you can approach financing, but the following techniques help you get better success rates.
Research Loan Types
Everyone knows about traditional bank loans and credit unions. However, if you need more flexible financing that can boost your business, you should conduct thorough research on the types of available startup loans.
Being aware of multiple options can help you select the right one. Here are some loan types you can consider:
- Business line of credit: A business line of credit lets business owners borrow funds on an as-per-need basis. You get a certain amount of fund allocation and can access it with time. Interest is accrued on the accessed sum and not the allocated amount. You can also re-borrow the funds after you have paid them off once.
- Term loans: Both traditional and online lenders offer term loans to startups. This includes a bank lending a lump sum of money over a specific period at a fixed interest rate. Based on your business proposal, you can be qualified for the right loan amounts and interest rates.
- Asset-based financing: Startup owners can take loans against their assets. This may include machines and equipment, inventory, real estate, and other valuable assets. This is a form of secured financing, so the bank will repossess the items listed if you default on loan payments.
Enquire about Government Loan Schemes
In many countries, there are special government finance schemes for startups and small businesses.
If your business qualifies under any government scheme in your country, it’s best to apply for a loan in this way. Government interest rates are not too high, and you mostly get flexible payback options.
Check Your Credit Score
The credit scores of the business and business owner are very important to secure low-interest loans. Lenders, be it banks or credit unions, rely heavily on the applicant’s credit score whether to extend financial help or not.
Businesses with a cleaner credit record are more likely to get loans. So, make sure to pay your debts timely. In addition to your business credit score, your personal credit score also matters.
That’s because loans are often guaranteed by the borrower. Hence, if the business fails, the owner will be in charge of repaying the loan. So, banks and lenders also consider the owner’s personal credit record while making a loan decision.
Be Prepared to Face Lenders
As a business owner, you must always be prepared with a financial proposal. The documents required to seek a loan often vary among different organisations, so make sure to find out specific requirements ahead of time.
If you’re just setting up your business, get your business plan or project plan ready. It may include building your online presence as part of the direction, you’re going to take to grow your business.
After taking these steps, make a folder of all essential documents that will help the lender assess your company’s financial status. Some documents may include:
- Credit report
- Business registration documents
- Bank statements
- Accounts receivables
- Tax returns
READ: 5 Basic Steps in Preparing a Trial Balance for Your Business
Make Submissions Carefully
Once you decide on a lender, find out the application process, and gather the required documentation; the final step is to submit your loan application.
Make sure you conduct the submission process carefully without leaving any margin for errors or discrepancies. You may consider checking for these factors:
- Do you have to apply online or offline?
- Do you need a deposit for a business loan?
- Are there any transaction limits?
- How many steps are there to finish the process?
Once you submit your application, there are lesser chances of fixing mistakes. So, do all your background work before actually sending in your application. Also, ensure you’re providing accurate details about your business.
Get your business idea off the ground
There are several alternatives to funding a startup, like crowdfunding, self-financing, getting business credit cards, or taking a personal loan. However, the most straightforward way is to get a startup loan for the required amount and keep paying it off as your operations take off.
The above steps can help you find the right loan for your startup so you don’t have to worry about funds when you let your dreams take flight!