3 Tips For Obtaining a Small Business Loan
Funding a small business is tough. Margins are typically tight, and most new businesses don’t even make a profit for their first year or more of operation. Lenders are often reluctant to lend to prospective owners without substantial business history.
Still, new businesses start every day, and individuals of all types are able to obtain financing. Here are three tips to help you obtain a business loan for your venture.
1. Strengthen Your Personal Fiscal Profile
Lenders will be more likely to fund to individuals with a stable financial profile, including good credit and (ideally) some business history. You can’t change your entire financial background all at once, but there are a few things you can do to be more attractive for lenders.
If your credit is subpar, focus on paying bills regularly and paying off debts. A small loan or credit account, paid regularly, will help you grow your credit, even over a period of months. You want to get your finances as clean and organized as possible prior to applying for a business loan.
2. Create a Sterling Business Plan
A lender will have more faith in your capacity to repay a business loan if your idea is backed by a well-researched business plan. Your plan should detail your business strategy, and overview of your product and service, market analysis that demonstrates your role in your industry, and a solid overview of current and projected finances.
3. Consider Alternative Lending Options
If you’re having trouble obtaining a typical loan from a bank or credit union, consider looking into alternative funding options.
There are a number of private or non-standard options you might consider, including a loan from family or friends, venture capital and angel investors, or crowdfunding. There are unique details to consider with each.
For instance, a venture capital investment can provide a great deal of upfront cash, but will typically require you to give up some portion of ownership equity in your business. Crowdfunding, alternatively, can be a huge boon if successful — but it typically requires having a developed public profile prior to starting a business, as well as the ability to draw on a fairly wide social network.
Still, it’s important to remember that there are funding options. Do your homework, make a solid financial plan, and explore various possibilities for raising capital. With the right idea, and a healthy amount of hard work, you’re likely to find a financing option that makes sense for you.
