If you dream of owning your own business, then a business loan is usually a key part of making this dream a reality. Very few people have enough money to start a business on their own back.
This is why many successful businesses are built on business loans. So, if you want to make your dream happen, you have probably considered a loan.
There’s no denying that applying for any loan is confusing and stressful. Especially if you don’t really know what you are doing. That’s why we’ve put together this handy guide full of all the information you need about getting a first time business loan to get you started.
How do I get a first time business loan?
If you are looking to set up your own business, or are looking for more financial support for a business that you have previously set up on your own back, then a business loan is the way to go.
There are so many loans available, all across the country, for first time business owners to be successful, and simply looking at the different options available to you can be very stressful. So let’s take a quick look at how you would go about getting a first time business loan.
Before you even consider applying for a first time business loan, there are some things that you need to do to prepare yourself for this application.
You could just go and speak to a lender, but they would probably just send you away until you have gathered the necessary Information. So, it just makes sense to do it yourself before you approach any lenders.
Step One - Check your Credit Score
The first thing that you need to do is research your credit score. Credit scores are heavily used in personal finance, but a lot of people think that they do not matter when it comes to business finances.
But it really does. When you apply for a loan, it is you applying for it, not the business, so the lender wants to know whether you can be trusted before they even consider giving you the money.
Of course, your business isn’t directly reflected in your personal finances, which is why this step can be very frustrating for some people. But, unfortunately, your personal finances and credit history will be hugely influential in whether you will be accepted for a loan, or not.
So, it is very important that you take a look at your credit score, and take any possible steps to improve it, before you apply for a business loan.
Step Two - Decide how much you want to Borrow
After you have tackled your own credit history, you can then start thinking about how much money you will need to borrow for your business.
It can be very tempting to apply for the maximum amount possible, but it is very important that you only borrow the amount of money that you need to get started.
It is also important that you only apply for money that you can afford, as you will likely need to put down collateral to get the loan.
Banks will be more willing to lend you if you are open and honest, and don’t borrow more than you need.
If you can formulate a business plan with the different reasons that you need to borrow money listed and the cash needed to cover this, then you will have a better chance of getting accepted.
So, it is very important that you calculate how much money you need, and what for, before you go to a lender, then you have a better shot of getting the loan.
Step Three - Gather your Documents
Finally, you should gather all the necessary information and documents for the loan application before you contact a lender. Most high street banks will outline what they need from you on their website, meaning that you can prepare your application before you even speak to a lender.
Unfortunately, as a first time applicant, you will need to provide more documentation than if you already had a loan. So, gathering the necessary documents can be slightly frustrating, but later on we’ll give you a list to help you out.
Only once you have completed these three steps should you approach a lender to seek a first time business loan. If you follow these steps then you have a much better chance of your application being accepted than if you were to just speak to a lender unprepared.
How hard is it to get a first time small business loan?
It is a well-known fact that applying for financial assistance is a lot more difficult when you are a first time applicant. The same rules apply to mortgages for homes as they do for businesses, and the sad fact is that it is difficult to get onto the lending ladder.
Fortunately, once you apply for, and receive, a first time business loan, then it generally becomes a lot easier to be accepted in the future.
If you follow the steps that we outlined above then the process will be slightly easier, but it is still rather difficult. Even if you have all the necessary information, there is still a chance that a lender might deny your application.
They might do this because you do not fit their target, or they have already given away their designated amount of business loans. This is why getting a first time small business loan can be very difficult, because you can be rejected out of no fault of your own.
Luckily, there are lots of lenders all across America who offer small business loans. So, if you get rejected from one, there is probably a business somewhere else that will accept you.
When you first look at loans, the amount of companies that offer them is rather overwhelming, but remember that this is a good thing. Most lenders have a very similar application process, and will require the same information from you.
So, once you have followed the steps we outlined earlier, you will be well-prepared to apply for a first time business loan from lots of different lenders.
What do I need for a first time small business loan?
There are lots of different things that you will need if you want to get a first time small business loan. We briefly outlined these earlier on, but let’s take a deeper look at some of the key things that you need to successfully get a business loan.
- A Good Credit Score - If you want your application to be successful then you will need to have a good credit score.
Even though the money is going to your business, the lender is giving their money to you, so they have to be sure they can trust you, and your credit score will prove this.
- Personal and Business Credit Score Reports - To show that you have a good credit score you will need to supply the bank with a copy of your personal credit report. You will also need to provide a credit report for your business.
- Basic Personal and Business Information - You will need to supply documents to prove all the information about yourself and the business is true. This will likely include photo identification for yourself, and a resume showing experience in business management.
You will also need to provide documents for the business, including bank statements, a balance sheet, income statements, business licenses, permits, contracts, and other legal documents.
- A Detailed Business Plan - This will show your plan for where the business is going, as well as a plan for how you will spend the funding should you receive it (statement of purpose). This will need to be as detailed as possible if you want your application to be successful.
- Personal and Business Tax Returns - This will prove that everything about your business is above board and legal.
- Proof of Collateral - The majority of lenders will require collateral before they will be happy to give you the loan. Some lenders will use real estate, others will use liquid collateral. So, you will need to provide evidence of your assets.
In short, the key to getting a first time business loan is preparation. If you can gather all the necessary information and documents before you speak to a lender, then you have a much higher chance of your loan being accepted. So follow this guide to find out how to prepare.