Small business financing can be overwhelming, especially if you’re a start-up or relatively new entrepreneur. When you’re considering a small business loan, what do you need to secure financing and where do you start? Here are five elements to consider to make the process easier to get through:
1. Have a business plan.
Any lender is going to have a lot of questions about your need for a business loan. Start-up funding is difficult to secure because most lenders want to see a cashflow that supports repayment, so make sure you detail your sales forecasts, actual sales figures and any other pertinent details that may influence the lender.
Specify what you will be using the money for and why you need it. Break down how much you need for individual fixed costs – equipment, inventory, day to day operations, expansion or a safety net.
2. Get your paperwork in order.
If you’re incorporated, make sure you have the incorporation documents with you to show the lender. Bring the commercial lease or items such as franchise agreements. You’ll also be required, in most cases, to provide the lender with tax returns (both personal and business if available), bank statements – again, both personal and business, and don’t forget the financial statements for the business.
3. Figure out what kind of loan you need.
There are a variety of loan types available, so research which one best suits your needs. In Canada, check out the Canada Small Business Financing Program or the Business Development Bank of Canada to see if you meet their criteria. Other types of loans may be available such as microloans, loans for young entrepreneurs, term loans or business lines of credit.
4. Figure out what kind of lender you need.
Choose the lender who offers the lowest interest rate, as long as you can meet the monthly repayment schedule. You want to secure the small business loan with the least amount of interest payable over the repayment period, so consider banks, credit unions, non-profit lenders, on-line lenders and other loan programs which may all have funding you can obtain to start or grow your business.
5. Do you qualify?
Which ever lender you choose, they are all going to make sure you qualify and meet their lending criteria so they’ll want to look at your personal credit score and history. They’ll also review how long you’ve been in business, what your annual revenue is and whether your cash flow supports repayment of the loan. Often, there is a minimum amount of annual revenue needed in order to qualify so look into this before approaching a lender. If you don’t meet the minimum sales revenue figure, they won’t consider your application.
Small business loans can be difficult to secure but are well worth the effort it takes to get there. Once your loan is in place, you can focus on establishing and growing your business, your brand and your profitability. And once you’ve established your business credit early on, lenders will be more apt to extend you credit in the future.