Do you have a brilliant business idea that you are sure to work? Or are you planning to expand your existing business? If you do not have enough money to finance your business, the best thing that you can do is to get a small business loan. Small business loans are credits that lenders extend to small business owners to start or expand their small enterprise.
However, getting a micro business loan is not as easy as getting an online personal loan. An applicant must prepare documents that can show that the venture can bring in profit to allow them to pay back the loan and the interest. The approval of the loan will depend on how you present your ideas and support it with reliable data.
Here are the supporting documents that you must submit along with your loan application.
Prepare a Business Plan
Before a lender decides to finance your venture, he would want to make sure that the enterprise that you are running is legitimate and that you are capable of making it profitable. The plan must include the aims of the business, the expenses and the revenue that you had in the past, and what you expect in the future, an analysis of the current market situation, and what you would do to make your business grow.
Your plan must communicate to the lender that you can make the business succeed. Once you finish your plan, write an executive summary. Potential lenders would read this first, and if they get interested, they would go over the whole plan and decide to approve the application.
Make a Financial Statement
The financial statement must include the expenses and revenues you had in the past years and what you expect to have in the next three or five years. Use the financial data in the last three or five years to project futures expenses and revenues. If the estimates show that your revenue would go up in the next three years or five years, you might get the lender’s approval. You must include your plan on how to use the money that you borrowed to finance your business.
State the Purpose of the Loan
Lenders would want to know how you intend to use the amount that you borrowed. Itemize all expenditures such as equipment, building costs if you plan to put up a new establishment or extend an existing one, the number of people you need to hire, and other operating expenses. Before writing down everything, survey several lending companies to find the best prices, which is the lowest. Lenders could see if the items in your list are overpriced and might not approve your loan.
Some finance companies would require collateral to secure your loan. Before submitting your application, check if the lender requires collateral. If you have a property to offer, then, you can proceed with your application, but if you do not own anything that you can use to secure the debt, look for a bank or lending institution that does not ask for collateral.
Check Your Credit History
Most banks and finance companies would require you to submit a credit history. Businesses that have been operating for years already have credit records. For a new company, the owner’s credit record could be used as a point of reference. The lenders would want to make sure that the entity or person applying for the loan is reliable in meeting financial obligations.
Undesirable credit history might hamper the approval of your application for financing. Build a glowing credit rating first before applying for a business loan to increase the chances of being able to get credit. Prepare bank statements and tax returns during the previous year and include these documents when you submit your application.
Have a Clear Idea of the Cost of the Loan
Borrowing money to finance your small business can cost you in terms of interest. Make sure that you understand the interest rate and the type of interest. Some financial institutions would offer a fixed interest rate or a variable interest rate. A fixed interest rate is the same throughout the repayment period while a variable interest rate changes depending on the existing bank rates.
After estimating the cost and the projected profit, you would see if borrowing money to finance the business would be beneficial.
Consider Your Options
Do your homework first by considering several lenders. You would have a better chance to get approval when you borrow from credit unions or small banks. Compare the maximum loan amount, interest rates, terms and conditions, and repayment options. Although considering several lenders might take time, your efforts would pay off soon.
With all the information and documents at hand, you are now ready to submit a small business loan application that has a bigger chance for approval.