Owning your own business is a manifestation of the American dream, but it can be difficult to make a dream come true on your own. If you're planning to apply for business loans with your local banks, here are some tips to help you keep your spirits up and knock them dead.
A Little Debt Is Good For You
You might think it's best not to have any business debts when you apply for a new loan, but this isn't always the case. The right kind of debt, and the right amount, can actually help you convince the loan officer that your business is a good investment.
If you're nearing the end of a previous long-term loan, for example, and you've been making steady payments on your balance, this shows the bank you can be relied on to pay back what you owe. On the other hand, if you've been using a business line of credit from another institution and you have a small balance each period, new banks will be happier to take on your business so they can enjoy the interest your debt generates.
When seeking a loan for your business, it's important to remember your personal credit rating is important, but it's not all that matters. You'll stand out from other loan applicants if you can demonstrate an ability to handle large-scale business debts competently, even if you still owe some of the previous loan.
Being Turned Down Can Open New Doors
It may sound crazy, but some of the best loans are only available to your business after it has been rejected from several institutions. Backed by the US government, Small Business Association loans are reserved only for business owners who can't get help elsewhere. They're worth the effort to attain, however, since they come with competitively small interest rates and low minimum monthly payments, which makes them suitable for fledgling businesses.
Small business loans loans are somewhat easier to get than direct business loans from the bank itself, but that doesn't mean receiving one is a cakewalk. These loans are given out through the banks, and they're the ones who ultimately decide whether or not you qualify. It's a good idea to talk to your lender about their SBA loan requirements on the phone before you go to apply in person.
You Need More Than Just A Plan
Coming up with a good business plan can feel amazing. It might feel like the only thing standing between you and success is a little bit of startup money. Unfortunately, the bank isn't going to feel the same way about your great idea, even if it's the best one the loan officer has heard all day. Before you'll be granted a loan, you need to take some steps toward building the business for yourself, to demonstrate competence and public desire for the goods or services you provide.
In addition to your brilliant business plan, it's a good idea to bring a few of the following items along to your meeting with the loan officer:
- Patent information for anything new you've designed. You'll be a less risky investment if there isn't a chance of being undercut by a competitor or patent troll before your product hits the stores.
- Documentation for your employees. Banks want some assurance that people will work for you and that you can be relied on to manage them competently.
- A prototype of your product, if you sell one. Making the loan officer want to buy what you're selling will go a long way toward convincing them that your business venture is worthwhile.
- Evidence of other investors or potential customers. If your business is in demand before it even exists, you're more likely to get further financial support. Having extra investors also helps convince the bank that other people believe you'll make money as well.
You don't necessarily need to have all of these with you at the meeting, but one or two of them will go a long way to convince the bank that your startup isn't a nonstarter. You may have to work hard to keep things afloat in the early days of your business, but once you get the ball rolling, there's no telling where it will stop.