Businesses need financing for a wide variety of reasons, whether it’s to upgrade equipment, acquire stock, increase their production capacities, or to expand into a new location. Without third party financial support, growth can quickly become next to impossible. Unfortunately, getting access to those funds isn’t as simple as showing up and asking for them.
Before your bank or other financial institution will approve a small business loan, they need assurance that both parties stand to gain something from the arrangement. That means assessing your business, and the project you’re looking to fund, to determine how likely you are to succeed, and whether you’ll be able to repay the loan. To maximise your effectiveness, you’ll want a firm grasp of your financial needs and the state of your business, so that you’ll be able to present a clear and confidence-inspiring loan application to your financial institution.
Do your research
A traditional bank loan can take weeks or even months to process, especially if you plan to secure the loan against real estate or other property that may need to be assessed by the bank before the paperwork can be processed. If the project you’re hoping to fund is time sensitive, you’ll need to plan for this. Other financial institutions, like Fifo Capital, process applications far more quickly than traditional banks. These allow you to get funding within a few days at most, but those loans also tend to work a bit differently, and are secured against different kinds of assets.
If your business has a good credit history, you might also prefer to pursue an unsecured small business loan, which is also generally processed more quickly. However, those tend to be far more limited in size than secured options. The right choice for your business depends on your specific needs and the situation you and your business are in. To determine what kind of institution you should be working with, and what kinds of loan options are right for you, it’s a good idea to consult with a financial professional.
Some institutions’ representatives will provide consultations that can help you make these decisions, but it can be helpful to work with an independent expert before actually submitting a loan application anywhere.
The more prepared and well-organised you are, the easier it will be to get approved, and the more quickly you’ll be able to get access to the funds you need. Your lender will need to do a thorough risk assessment to help determine whether you qualify for financing, how much you can be approved for, and what interest rates you can expect to pay. That assessment isn’t just based on hard numbers, but also on your general level of preparedness and the impression you can make with your institution’s representatives.
Have complete and up to date paperwork ready
In most cases, your lender will want to take a thorough, 360 degree look at your business. Provide a full list of your business’ assets and liabilities, up-to-date tax records, and your accounting records to give your financial institution a complete picture of your cash flow situation. The more thorough the records that you can provide are, the better.
Produce a detailed plan
Don’t show up with a vague outline of what your small business loan is meant to cover. A simple request for $150,000 to update your production equipment might sound reasonable on its face, but it communicates a lot of things to your prospective lender that you might not want. The round number suggests that your costs are based on rough estimates, and the lack of detail makes it difficult to determine how you plan to budget the funds, and whether the investment will even benefit your business.
Lenders need to believe in what you’re doing. To that end, you’ll want to have a thorough project proposal on hand. Ideally, this will track all associated costs that you’ll need to deal with, from every piece of equipment, to installation costs, to any projected revenue loss due to work interruptions, to possible inspection costs. Following that, supply a clear analysis of exactly how these changes will enhance your business’ productivity and ultimately make your business more profitable and competitive.
Doing your research, consulting with a professional ahead of time, and thoroughly thinking through your project before applying for financing can make an enormous difference in how your financial institution perceives you and your business. Further, it’ll help you choose the right kind of financing option for your project, while also often getting you access to the funds you need more quickly.