Let’s be honest, getting any kind of business loan is incredibly hard. For a first-time applicant, it can prove to be an even greater challenge. Lenders consider first-time loans to be quite risky and therefore tend to be more cautious with those applying for a loan for the first time.
So, how can you set yourself up to increase your odds of success? Here are a few good tips.
Find a lender whose experience matches your needs
Carefully selecting the lenders that you target can significantly increase your chances of success. A lot of first-time applicants make the mistake of contacting lenders who are not knowledgeable about their industry. If you approach such lenders, they’ll probably look at your idea with a sceptical eye, and your chances of getting a loan might not be that great.
On the other hand, if the lenders know something about your industry or have some working experience in it (such as a history of lending to other businesses in the same industry), it will be easier to explain yourself, show them that you’ve done your homework about the industry, and can succeed. This can significantly boost your odds of getting a business loan.
Prepare a meticulous business plan
Lenders such as banks, venture capitalists and even individual investors look to minimise risk as much as possible. Including a well-thought-out business plan with your loan application can increase your odds of getting a loan. How? A business plan communicates one key message to interested lenders: that you are serious enough to engage in formal planning of your business. That’s one thing lenders love to see. To them, a person who plans is a better risk that one who does not.
If you don’t know how to write a business plan, you can hire a professional business plan writer. These days, such professionals are one Google search away. You can search for one who lives close to you and arrange a meeting. Many of them work fast and will have the plan ready for you in two to four weeks. However, before hiring a writer, you should definitely sample their work and try to authenticate their credentials.
So what should your business plan look like? At a minimum, make sure that it includes the following: a mission statement, a description of your products or services, a market analysis, financial projections (revenues, expenses, cash flow projection and profit) and, finally, management strategies for achieving business goals.
Another important tip is to make sure that you leave out any appearance of risk in your business plan. Even if you are planning to make some calculated risks in your business later on, don’t focus on them in the business plan. The mere suggestion of risk may push lenders away.
Invest some of your own money
Personally investing in a business can inspire confidence in lenders as it indicates that you have complete trust in it. In your loan application, therefore, you might want to mention that in addition to the loan, you will be putting some of your own money into the business too.
Mention the collateral you are willing to put up
Not all lenders will require that you put up collateral for the loan. However, if you have any assets that you can afford to put up as collateral, mentioning this to lenders may be useful, as it can show them that even if the business fails, the loan will be repaid.
Understand the jargon and be prepared to answer tough questions
Before visiting your lender, you must do enough homework to understand not just the jargon related to your business, but also that related to business loans in general. Understand such terms as ‘interest rate’, ‘collateral’, ‘leverage’, ‘equity’, ‘foreclosure’ and ‘liquidity’, among others that are common in the loans industry.
In addition, if the application process involves a face-to-face interview with the lender, be prepared to answer tough questions. For example, if your business is in its startup phase, the lender might want to know the odds of success of your business against the industry average and might also want you to explain how you arrived at these odds. Be prepared to answer such challenging questions and anticipate any follow-ups. An interview is an opportunity to provide information to convince a potential lender that your business is worth investing in.
If you are a first-time applicant hoping to get your first business loan, preparation is key. Your primary goal is to remove any doubts that lenders may have about your business. Using the tips above can help you in this regard.
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