You have a lot of enthusiasm and a great idea for a new business, but you are going to need money, and the common option is a business loan. How can you be able to get a business loan to start a business? One of the hardest types of loan to get is a loan to start a new business or buy an existing one. This is because the bank doesn’t have any business history they can look to determine whether you are able to repay the loan. Below are some great tips that are going to increase your chances of getting approved for the loan.
1. Preparing an In-depth Analysis of the Market
You need to show the bank that you have a good understanding of the market and industry you are about to enter. You will be presenting a business plan to the bank, and you should make sure you have included a detailed analysis of the market, the customer base, and the industry as a whole. You should have a statement showing the market share you think you can capture and how it is going to translate to profits for your business. Base your projections of income, cash flow, and expense projections on similar companies. This information is important because it will help in convincing the bank that your startup will be able to generate the cash flow necessary for you to pay back their loan. If you find it hard to do so then maybe consider a car title loan or a merchant cash advance
2. Accounting for Where the Business Loan is going
There are many people who usually overestimate the amount they are going to need. When developing the business plan, make sure you have accurate estimates and also try justifying how much you will need for each purchase you are going to make. If you apply for a loan but you don’t justify how the money is going to be used, then the loan is not going to be approved. If you account for every dollar in the business plan, then you have a higher probability of getting the loan. You need to prioritize the need for funds. Let’s say you apply for a loan of $50,000 and you plan to spend $25,000 for equipment, ensure you have included it in the business plan. State the type and purpose of the equipment you plan on buying. Give a breakdown of how you plan to spend the remaining amount.
3. Sharing your Business Experience with the Bank
If you or someone going to work for the business has experience in the industry, share the information on the business plan. The more experience you or your management have, the higher the chances of getting approved for the loan, especially when the experience is in the industry you are about to invest in. When you have experience in that industry, the bank will have more confidence that you know what you are getting into and how you are going to handle challenges that might come up once you have started the business, including paying back the loan. If you have a colleague who has experience in the industry you are interested in and they are going to be part of the business, then you need to let the bank know because it is going to help. If you have management or ownership experience but not in the same industry you are about to get into, you should include it in the business plan because it is going to help.
4. Pledging your Personal Wealth
When you apply for a business loan for a startup, the only way your application will be accepted is by pledging your personal wealth as collateral for the loan. If you own a home, you can use it as collateral and even take out a home equity loan. There are many other personal assets that can be used as collateral. The bank will be expecting you to make some financial commitment to your business by putting in some of your cash in the business. Doing this shows that you are confident about the business succeeding, and this is going to improve your chances of getting your loan approved.