When you are starting a business, especially if it’s your first entrepreneurial venture, you have many emotions attached to it. You are excited. You are hopeful and yet doubtful. You are almost overwhelmed. This is all because, behind all those emotions, there is one worry that keeps you on your feet – how to fund your business. You have the vision. You have the goal. You have the enthusiasm it will take to run that business. However, what you are short on is cash to run that business. Young entrepreneurs are often faced with this dilemma when starting their first business and maybe this is why many of them bail out on the journey before it has even begun.
You do not necessarily have to have a drawer full of cash to start your own business. You can go to venture capitalists to invest in your business. You can pitch your idea to someone who has the money, time, or resources to put in, or you can choose to apply for a loan to start your small business. Getting a loan to start up a business when you are fresh in the market with no background or history to prove your credibility might turn out to be a daunting experience. You might be focused on all your dreams, visions, and aspirations regarding your business, but the lenders would only care about you having a secure way to pay them back.
However, we are listing down the basics you should check off on your list before applying for a small business loan.
- Before you go to a lender to ask for a loan, you need to have a strong business plan to back up your business claims. It should include all your future budgets, prospected sales, and all the expenses you will have to incur. You must also include all your revenue resources, as well as your suppliers and customers. All this must be laid down clearly in the form of a solid business plan, so your lender will be convinced that you are diligent about your plans.
- You cannot expect the bank to give out a full-fledged loan to you. They sometimes do, but many times the bank would want you to contribute at least 15% – 20% of what you are borrowing from them. It is possible that you will have already saved up some amount before going to the bank. Other than that, have any collateral ready to put up against the loan because it is a new business, an uncharted territory – the bank needs this security.
- Get all your documents ready before going to the bank. Your credit receipts, your income statements, your tax receipts, all the future projections, everything that can be legally required by the bank. Call them up and inquire beforehand what they will be required, and then take that along when you go to meet them.
- The bank will need to see something official here. You need to get your business registered and obtain all the permits and licenses that you will need to operate your business activities. The bank will verify them and ask you to fill in credit forms. After that, you will have to wait until the lender makes their decision.