Taking out a small business loan can be a great way to power your growth. While investors and venture capitalists will likely want to take a hands-on approach and receive equity in your company for their trouble, a bank will be satisfied to stay in the background and leave you in complete control of your business.
However, convincing the banks that your business is firmly on the pathway to success requires a little work from you. Follow these six steps to ace the application process and secure your funds.
Step 1: Choose the right bank and loan
While securing a small business loan with a competitive interest rate is important, it’s not the only factor you should consider when choosing the right bank for your business. Look for a financial institution that specialises in working with small businesses and is willing to support your growth beyond the initial loan. Also consider the fees the bank charges in addition to interest and any special deals they may be able to offer on complimentary services such as insurance or financial advice.
Step 2: Refine your business plan
Before approving your loan, your bank will want to see strong evidence that you’re capable of making the repayments. This is where a strong business plan will pay dividends. Include cash flow statements along with balance sheets and tax returns that prove your income to show the bank that your business is a good bet.
Step 3: Include a marketing plan
Take your loan application to the next level and include a marketing plan that explains how you’re going to deal with the competition and raise your profile to win additional business. While your bank will likely be more interested in the numbers you’ve already achieved than forecasts, including a marketing plan will help to convince the powers that be that your business is headed in the right direction.
Step 4: Provide collateral or a co-signer
The bank will likely require you to put up assets – known as collateral – that it can sell if you default on your loan repayments. This might be your plant equipment, inventory, office premises (if you own it) or perhaps even your personal home. If you don’t have the required collateral, you may be able to use a co-signer to help get your application across the line. Recruit trustworthy individuals with a good credit basis to be your co-signer.
Step 5: Come up with a repayment strategy
During the application process, the bank is essentially determining whether or not they believe you can meet the loan repayments. So help them out and include a repayment strategy in your application that sets out where the repayment money will come from and a contingency plan if your business strikes a cash flow bottleneck.
Step 6: Be prepared to get personal
Your bank may ask you to disclose your personal financial position in addition to your business financials. It will also likely be interested in your past performance and experience as a business manager. If you can demonstrate previous business success – either as a business owner or a senior employee – you’ll go a long way to securing final sign-off on the loan.
Successfully applying for a small business loan requires more than filling out a form. Show the bank you have a strong business plan in place, are able to put up the necessary collateral, have thought about a repayment strategy and have the business experience you need to ensure your company is a success. The rest will be easy.