Small Business Financing: 5 Ways to Boost Your Odds of Getting a Loan
If you’re planning on starting a small business, you’ll need more than hopes and dreams to get your company off the ground. Starting a small business takes a lot of planning, sacrifice, hard work, and dedication. One of the most challenging obstacles you might face is getting the small business financing you need to get started.
Being a small business owner means being a problem solver. Now is the time to start working on your critical thinking skills.
If you’re having trouble getting small business loans or want to make sure you set yourself up for success, we’re can help. Keep reading for our top five tips on how to improve your odds of securing small business lending.
1. Know the Industry
First and foremost, you need to do your homework about the industry within which you are starting a business. A lender or investor needs to see that you know your stuff. This means finding out everything you can about the market.
Answer the following questions, as they will likely be asked by potential lenders:
- What are the average startup costs for businesses like yours?
- How much money will it cost to maintain the daily operations of your business?
- How is the local market for businesses like yours?
- Are your proposed products and services in high-demand?
- Do you have many competitors in the area?
- What can you charge for your products/services?
- How much business do you have to do to make a profit?
- What are the most effective means of marketing your products/services?
- Is your industry growing or in decline?
The more knowledge you possess about your industry, the more prepared you’ll be to start and maintain a successful company. This knowledge will also be comforting to lenders or investors who are on the fence about providing financial assistance.
2. Start Small
Nearly 20% of small businesses fail in the first year. Almost half of all small businesses fail by year five.
The number one reason businesses have to close is because they can’t afford to keep the lights on. It could be an issue with their marketing, their products/services, their management, etc. Regardless, the primary problem is that they aren’t bringing in enough money to make ends meet.
To avoid this, start small. Ask for a moderate amount of small business financing, just what you need to get off the ground. The less overhead you have, the more room you have to learn the industry, make mistakes, and grow as a business owner.
If you start off too big, you’re forced into a position where you’re either thriving in the first few months or you’re facing extreme financial stress. Rent a smaller building and keep your costs low. Allow your business to grow as you build up your community/online presence and gain brand awareness.
Starting small and asking for moderate funds will also make it easier to obtain small business loans and investments.
3. Create an Amazing Business Plan
One of the most important steps in getting small business loans is creating an impressive business plan. Your business plan will outline every detail of your proposed business, from your market analysis to your requested funding. Banks, investors, and other lenders will use your business plan to gauge the credibility of you and your company.
Take your time and do your research. A professional and thorough business plan should include the following categories:
- An executive summary (a brief outline of your company)
- A business overview and your objectives (the purpose of your business)
- A description of the products and services you will offer
- An analysis of your target market (the consumers who will become your customers)
- Your sales and marketing strategy
- An analysis of your competition
- A breakdown of your daily operations
- The structure of your business (management/employees)
- Financial projections (costs vs revenue)
- Your funding request
Business loan providers and investors need to see this information laid out before them to decide whether or not your business is worth the risk. The more time and effort you spend on your business plan, the more likely you are to gain trust and secure small business financing.
4. Improve Your Credit Score
When looking at various business loan options, one thing banks and other lenders will take into account is your personal credit history. After all, if you’re borrowing tens of thousands of dollars (or more), they need to make sure you’re someone they can trust to make payments. Additionally, if your business goes under, you’re still responsible for paying off that loan.
If you’re worried about your credit score, there are several ways you can make improvements. For example:
- Make all of your bill payments on time
- Dispute any errors in your credit report
- Resolve any past-due accounts
- Don’t leave credit cards maxed out
- Reduce your debt to income ratio
- Keep open lines of credit with low balances
If you’re looking for fast credit repair and need help, we recommend working with this company. They have a 120-day satisfaction gurantee.
5. Keep Your Options Open
Finally, when looking to secure small business financing, remember that you have options. Just because one lender says no, it doesn’t mean all lenders will turn you down.
However, you must be careful not to apply for too many loans in a short period of time. Doing so can reflect negatively on your credit score.
If you get turned down from a bank because you have a low credit rating, take time to repair it and try again a few months down the road. This will also help you get approved for better business loan rates.
Alternatively, consider your other small business financing options. For example:
- Angel Investors (wealthy people looking for sound investments)
- Peer-to-peer lenders (investment groups)
- Personal investors (friends, family members)
- Bootstrapping (starting with the bare minimum using credit cards, savings, personal loans.)
If you get turned down, don’t give up on your business. You might need to refine your business plan, improve your credit, find a business partner, or find some other solution.
Want More Tips on Small Buisness Financing?
If you’re planning on starting a business, it won’t happen by accident. Nor will getting approved for small business financing.
Do your homework, take your time, and put in plenty of effort to make sure you get the funding you need. And remember, it’s okay to start small. It’s probably better that way.
Before you go, check out some of our other articles for more business and finance advice. Our blog was created to help entrepreneurs like you thrive in a competitive business world.