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Small business loans are a popular and reliable source of funding for startup companies and mom-and-pop shops. The SBA (Small Business Administration) is an institution that helps business owners connect with lenders who can offer helpful and manageable loans. There is also a wide variety of alternative lending options, each with its own benefits.
If this is your first time applying for a business loan, read up on how to prepare for the application process. Make sure you can check these boxes before you submit that application!
Maintain Solid Credit
Lenders like to loan money to trustworthy people with a record of repaying their debts on time. Your credit score is a significant factor in this decision, so make sure you’re paying your existing bills and debts in a timely manner. If anything on your credit report looks suspicious or fraudulent, remediate the problem before applying for a loan.
Write Up a Business Plan
Create a detailed five-year business plan that explains in detail how you’ll be using the loan to grow your business and maintain a profitable model. In your business plan, include:
- What makes your business unique
- How you plan to serve your audience
- Detailed financial projections
- Your business’s proposed monthly budget
- Goals for future growth
Think of your business plan like a pitch. Include plenty of documentation and market research to support your plan and convince lenders that your business is a worthwhile investment.
Research Your Options
While SBA loans and traditional bank loans are popular options, they’re not the only options. Consider these alternative lending methods as well.
- Venture capitalists. These are individuals and firms who invest in promising new businesses in exchange for a seat on the company’s board of trustees. They can provide valuable business advice, especially in your early days.
- Business credit cards. They work like a regular credit card: buy now, pay later. Using a business credit card can also help you build up your business’s credit score.
- 401(k) loans. If you have available funds in your retirement account, you can borrow against it now and repay the account.
Read the Fine Print
No matter which lending method you ultimately choose, you’ll need to read every word of that loan application. Get out your magnifying glass if necessary—you don’t want any hidden loan fees lurking in the fine print to take you by surprise.
Remember: don’t sign your name to anything you don’t understand. Read your loan paperwork in full and ask your lender plenty of clarifying questions.
Starting a new business is an exciting step in life. Reap the rewards of business ownership for years into the future by preparing for the business loan application process and all subsequent steps.