Every business needs capital to finance its operations. Capital can be in form of either debt or equity. A business seeking to finance its operations through equity usually sells a part of the business for the money. This means that you are no longer the sole owner of your business. Debt financing, on the other hand, involves you taking a business loan and paying it later as your business makes profit from the borrowed money. There is no dilution of ownership, the lender does not have any claims on the profits you will make in the future, and also interest on loans are tax deductible. So loans are a great way to grow your business but the big question is how do you apply for a business loan? Let’s start here:
Determine the amount you want to borrow and why.
Banks or other lending institutions don’t just give out loans for no particular reason. If this was so, many lending institutions would be bankrupt by now. This means that you have got to know the exact amount of money you want to borrow and also point out the reasons as to why you need the money. You can do an evaluation of your financial statements so that you know how much profit you make every year and how much money you will need to borrow to make more. You can also do some budgeting for the items required to grow the business. The money you borrow should be able to generate enough profits to pay back the interest on the loan and also the installments required by the lender.
Seek some financial advice on your loan application
This may seem like a minor step but it is very important. You will need to seek advice from organizations specializing in financial advisory services. These financial advisors can help you determine if the loan you’re applying for is the right one for you and also further help you assess any repercussions that may come with it. They will also give you advice on how you should spend the money once received so as to generate more revenue.
Assess your credit score
Reviewing your credit history and score is a usually a necessity if you want to apply for a business loan. The bank will always assess your credit score before giving you a loan so you will need to ensure that you don’t have a bad score. Other lenders may have products where no credit check is needed. Financial institutions usually give loans to businesses with a good credit history to avoid any cases of loan default. Always ensure that you get your credit report from the agency before applying for a business loan.
Evaluate the various borrowing options you have
Money lending institutions have different interests on loans and repayment systems. You will need to find the one that best suits you and your business. Many businesses tend to select a lending institution without assessing their interest on the loans. This means that they may end up paying a considerable amount of interest which could be reduced by choosing another lender.
Develop a business plan
A good business plan tremendously increases the chances of you getting a loan. A business plan shows just how organized and professional your business is. The lender is able to see almost everything they need to know about your business through it. It should contain your business name, address, income statements, cash flow projections, marketing plan, and balance sheets.
Visit the financial institution for your application
This is the final step and will be very crucial to determining if you are going to get your business loan. By now you already have everything needed so all that is left is making a presentation to the financial institution to convince them why they should give you the loan. The institution will ask questions regarding the amount of loan you want and the time period within which you will pay them back, your credit score, the industry your business is in, and your annual revenue. By now you already have all these and so it becomes very easy to fill out the application form and also answer any questions which the lender may have.