If you are considering establishing a small business, applying for a loan is the best way to fund your start-up. However, small business loans are very difficult to get. Banks only approve about 13% of such loans in Maryland, which makes the process really competitive.
So, what does one have to do to ensure they get the loan? There are a few steps you can take. Navigating the world of business can be tricky, but the guidance of an expert can help. A professional from an accounting firm in Hanover, MD can increase your chances of success.
Read this blog to understand how you can prepare your business for a successful loan application. With the right tips, you will be able to avoid the pitfalls that most small business owners are not aware of.
Steps to prepare your business for a successful loan application
Educate yourself on business loans
Lenders only lend their money to borrowers who they can trust. As is obvious, nobody is going to trust you enough to give you their money if you do not understand the basic difference between a term loan and a business line of credit. You should have some knowledge about the interest rates and how everything works.
Before meeting with a lender, it is recommended that you do your homework and learn the basics. The more you demonstrate your knowledge, the better they will be able to trust you.
Organize your financial documentation
Having your finances organized not only conveys that you have come prepared but that your business health is in check. Make a list of all the documentation you might need for your first meeting with a lender. Here is a basic list that works for everyone:
- Financial statements.
- Tax returns.
- Business licenses and registrations.
The last one is of particular importance. Business licenses and registrations show that your business is legit and in compliance with local, state, and federal laws. Keeping these documents handy will simplify the loan application process.
Think like a lender
You have organized your documents and booked your first meeting with the lender. Now, it is time to think like a lender. While every lender has different criteria, there are some basic factors they all consider when deciding whether to approve the loan. These include the following:
- Desired loan amount: Most lenders in Maryland do not lend money more than 8 to 12 percent of your annual revenue.
- Loan purpose: Lenders can be very choosy about approving loans based on the purpose. For example, if you are planning to buy out a partner, you may have a hard time getting a loan.
- Credit score: Lenders have credit score thresholds to decide whether to consider the loan. For example, only people with a 600+ credit score can get a loan.
Decide which type of loan you need
Various factors determine which type of loan you will need, including loan amount, timing, use proceeds, and creditworthiness. Here are some popular loan types to consider:
- Term loan: It is a classic type of loan where the lender gives you a lump sum, which you will have to pay back in increments, and it usually has interest.
- A business line of credit: A business line of credit is like a pool of money from which you can take loans whenever you need one. There is a pre-approved amount that you can borrow. Once you have paid back the amount you took, the money becomes available for you to borrow again.
Get your loan approved today!
If you have dreams of establishing a C, the lack of funds should not hold you back! Work with an experienced financial advisor today to get you through the loan application process and secure the funds you need to succeed. Schedule a consultation today!