So you have a wonderful idea that you are sure you can grow into a successful business, but you lack the start-up capitol to get your dreams on track. The answer for many would be entrepreneurs is financing their small businesses through bank loans. Here are 4 things you’ll need to know before applying for a small business loan.
1) Get the Loan
Approaching a small business loan like a job interview can get you one step closer to approval. In its most basic form, this means dressing and acting professionally. On a deeper level, it means doing your research. Before applying for any loan, get to know your financial situation. Understanding your cash flow, credit quality, and collateral can help you better articulate why loaning you money is a good idea. When you know the numbers, you can also better understand how much money you’ll really need.
2) Know the Real Numbers
This means understanding how much you’ll actually need to start and maintain your business. That means doing research to figure out what realistic costs might look like to run your small business against conservative gain estimates. Once you know those numbers, you can better figure out how much money you’ll need, not only for the initial start-up costs, but also to keep your small business running until it is cash flow positive.
3) Know Why You Need the Money
Some small business owners need loans to get the ball rolling, others need it for advertising, to build inventory, or to move into a larger space. What ever the reason you need a small business loan, make sure you apply at the right place. Some lenders are better suited to help specific money problems, and asking the right place means you’ll have a better chance of approval.
4) Know What You Are Getting Into
This goes hand in hand with knowing the real numbers. It means that you read and understand all the terms of your loan, and it also means you understand your annual percentage rate and how much money you’ll actually owe. Be an informed shopper means understanding what the fees will be, as well as any prepayment penalties. It also means thinking about worse case scenarios. What happens if your business is not successful? What is at steak? Once you know all that, you can make an informed decision if starting your own business is the best course of action for you.