10 mins

How to Get a Small Business Loan – Tips And Tricks

Mollie Thick
Jun 25, 2018

This is agues post by Thomas Welsh. Thomas is a Cofeeaholic serial reader who enjoys Italian food and photography. He's passionate about contemporary art and travelling. He's dedicated several years to help small businesses as an independent consultant and eBay seller advisor.

Having a great business idea is only the start of your journey, because a great idea still requires a financing plan in order for it to become a reality.

Fortunately, there are many avenues available when it comes to borrowing those much-needed funds.

However, obtaining funds for a business can be much harder than if it were a personal loan, as there is a greater risk involved for the organization who is lending your business the money.

In this regard, there are a few factors that should be taken into consideration when planning to borrow capital for a business.

Prepare a Business Plan

Many people will have a fantastic idea, but fail to document as to how the business will work.

Not having a business plan will tell banks, loan companies, and investors that you’re not as serious about your business as they would like you to be.

Preparing a business plan can be cumbersome, but it’s something that will put you in good stead moving forwards.

Your business plan should detail how the business will work, how it will make money and how you will play for any stock and utilities.

It can also be an idea to come up with a contingency plan should anything occur that poses a threat to your business.

If you are having difficulty in preparing your business plan, then why not look at the services available to you.

There are many examples available online, and many local schemes can assist local entrepreneurs in putting their ideas onto paper.

Having a business plan in place will show potential lenders how you will make the money required to repay the loan.

Banks Are a Bad Choice for a Small Business Loan

As previously mentioned, there are a number of avenues available to you when it comes to obtaining a small business loan, but your first port of call traditionally would be your personal bank.

Unfortunately, banks have not adapted to the needs of the small business owner today, with many finding it impossible to get significant funding from the banks!

This is due to the funding gap which has emerged as a result of the banks focusing their investments on bigger corporations, needing larger loans over an extended period of time, ensuring maximum revenues for the banks.

Thus the little guy gets nothing, leading many to try out alternatives to fund their small business loans!

Adhere to a Lender’s Guidelines

Like any business, a lender has guidelines in place to ensure that as a company, it is making wise choices when borrowing money to a business. This will help minimize any loss that is associated with the borrowing of money.

Evidently, the best case scenario for both you and your potential lender is that you are able to adhere to each of the lender’s guidelines.

Researching the guidelines will ensure that you have all the relevant documentation and information required for making a successful loan application.

Detail Your Income Streams

Proving that your company is able to generate an income is great when it comes to making a loan application, but you need to ensure that you are explaining all income streams.

Although you may have a business within a certain sector, there may be different income streams due to a different number of services. For example, a cleaning company may offer a maid service and carpet cleaning services, so in this regard there would be two income streams.

Detailing these income streams will help you promote a strong company with a number of different income streams. Showing potential lenders that you have more than one income stream will instil confidence when it comes to borrowing your business money.

In order to receive a small business loan, detailing your stream of income is vital.

Detail the Story Behind Your Business

Many people start a business out of passion, and its passion such as this that can help lenders make a decision as to whether they lend to you or not.

Explaining the story behind your business can help lenders build a vision as to how your company will operate.

It will also detail the benefits of your business along with its values.

Decide On How Much You Need to Borrow

Before making any kind of application, you should be fully aware of how much money your business requires.

Although it can be tempting to go for an estimated figure, you don’t want to borrow beyond your means, especially if your business is relatively new.

Document on what the money will be used for and then decide on a figure.

Don’t go over this figure, even if you are being persuaded otherwise.

Borrowing too much can put a strain on you financially, which can have an impact on the business itself.

Obtain a Credit Score

Before booking any meetings with potential lenders, obtain a copy of your company’s credit report.

This will show how your business has dealt with incomings and outgoings so far, which can only have a positive impact.

Evidently newly-founded businesses may not have had enough time to build up a strong credit history.

In this regard, you should at least look to obtain a copy of your personal credit score.

Although it may not have the same impact a business credit score would, it does show that the person behind the business has a strong financial background.

Carry Out Research on Potential Lenders

Many people looking to borrow money for a potential business could find themselves falling at the first hurdle if they have adverse credit.

This means that although there are options, there could be some terms and conditions associated with those options that may not necessarily be found in other lenders’ terms and conditions.

Many lenders who lend money to those with adverse credit will put extra safety measures in place to ensure they see a return.

One such measure is a higher APR, which many with adverse credit are introduced to as a greater risk is associated with borrowing.

Don’t feel as if you have to accept the first offer put in front of you, there are many companies who can help you all keen for your business.

You should always carry out research as to what terms and conditions you have to adhere to when borrowing money from a certain lender.

You should also look at what the possible ramifications are should your business fall into any difficulty when making repayments.

Research is imperative to getting a small business loan.

Promote Your Business’s Plans for the Future

Although you may have a strong understanding of how your business fits in with the current climate, you also need to show how your business can adapt in an ever-evolving world.

Lenders may not be keen to lend to a business that only has a short shelf life. Ensure you instill confidence by showing not only how your business can operate now, but how flexible it is when face against change.

For example, a magazine may see a decline in readership in hard copies alone, but may be able to counteract this with strong sales via electronic downloads.

Face the Fear of Rejection

Many can be dissuaded from applying for any further small business loan applications if they have been rejected on their first application.

However, a rejection can be used to your advantage, it should be embraced rather than feared.

Rejection doesn’t mean that the business idea is a total failure, it just highlights some weak points within your business plan.

Simply tighten up these points before applying again, using any feedback as a learning curve.

Understand the Different Types of Small Business Loans Available

Although the idea of a loan can seem pretty straightforward, there can be a lot more involved with borrowing than expected.

For example, there are a number of different loans depending on your business’s circumstances.

Understanding these different loans is vital so you know that your business is making the right choice when making an application.

Long-Term Loans

Long-term small business loans are the most common type of loan offered by commercial lenders.

Businesses may opt for a long-term loan so they expand their business, or give the business access to working capital.

Long-term loans are normally higher in value, but with lower interest rates.

This type of loan is normally suited to companies who have been trading for some time and are paid back at an agreed amount on a monthly basis.

Short-Term Loans

Short-term loans are used for shorter term needs. This can include a small project or to build up inventory.

The amount is normally lower in value than that of a long-term loan and is paid at the end of an agreed term.

Lines of Credit

This type of loan doesn’t offer a business an agreed amount, but rather gives it access to funds as and why required.

Although a line of credit can be useful, it can come with some fees, so should only be used for temporary shortfalls to a business’s income.

Establishing the right kind of loan for your business will ensure that your business not only has the right type of loan, but also only paying what it should when repaying the loan.

If you want to find out how to get a loan with Bitbond, like many business owners before you, please visit bitbond.com.


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