Acquiring a small business loan is important for expanding your business. The thought of borrowing money often makes small business owners nervous, but as long as you’re organized and understand how loans work, then you’ll be fine. Here are five things you need to know about small business loans to help get you started and ease your nerves:
1. Lenders Want Reassurance That You Can Pay Back the Loan
You might think that if you appear to need the loan, then lenders will be more likely to approve your request. However, the opposite is true. Lenders look for signs that you’ll be able to pay back the loan. If you look like you don’t need it that badly, then you’ll be more likely to receive a loan. This means to dress professionally, maintain good cash flow in your business, and have a good credit score.
2. Typical Documents You’ll Have to Show the Lender
When applying for a small business loan, lenders will often ask to see your business plan, cash flow, profit and loss statements, and balance sheet. These important documents will show them how capable you are of paying back a loan, how risky lending to you is, and how much money they can afford to lend you based on your ability to pay it back.
3. Small Businesses Tend to Seek More Than They Actually Need
Carefully scrutinize your finances and determine how much you really need to borrow before requesting a loan. Businesses tend to ask for more than they need, so place thought into the amount you ask for first.
4. If You’re Rejected for a Small Business Loan, Address the Problem
Another important thing to know about small business loans is if you’re rejected by one lender, you will likely be rejected for the same reason by subsequent lenders. If you’re rejected the first time you make a loan request, ask why it was rejected and then fix that problem before sending out another loan request.
5. Always Apply for SBA-Backed Loans
SBA-backed loans have lower interest rates than other business loans. Therefore, as a small business owner, you should always apply for an SBA-backed loan. You won’t have as much money to pay back. Interestingly, some businesses that aren’t small can sometimes apply for an SBA-backed loan, so don’t forget that little fact if your business grows larger.
To be approved for a small business loan, you must have your important financial documents in order and a good understanding of how much you truly need to borrow and a plan for paying it back. You don’t want to borrow more than you need as it will mean more money that you need to pay back. Worse yet, you don’t want to get yourself into a situation in which you don’t pay the loan off on time.