Did you know that borrowing money for your startup can give you a huge advantage?
This may sound obvious, yet a lot of entrepreneurs are wary of securing a business loan before their vision is in full swing.
They assume that they can scrabble together the money themselves. Or, they worry that they won’t be able to fulfill the business loan’s terms.
Either way, 29% of startups fail because they run out of cash.
If you’re eager to join the ranks of successful entrepreneurs out there, it’s important to identify means of financing your dream.
In this post, we look into how to get a loan for your startup, the right way.
Read on for insight!
1. Identify a Business Plan First
A business plan is the heart of any entrepreneurial vision. It’s difficult to implement any vision without a clear direction.
A typical business plan is detailed and comprehensive.
It includes a market and competitor analysis as well as a breakdown of services and products. Many plans will also detail management and organization structures.
Most importantly, a business plan also incorporates a marketing and sales strategy. Without this strategy, it can be difficult to identify your financial needs, which is crucial to securing a business loan.
Craft your business plan before you start reaching out to business loan lenders.
2. Know Your Financial Needs
After you complete your business plan, you should have a sense of your financial needs.
Generally, your projected initial expenses, outlined in your business plan, will give you an approximate idea of how much money to request. If you are unsure about these expenses, it may be worth consulting an accountant.
Keep in mind that some lenders may only issue loans of a specific amount. Some, for example, may not offer loans smaller than $10,000.
Others may only be able to offer a few thousand dollars in working capital.
Knowing your business’s financial needs also means assessing your assets and existing collateral (outlined below) and identifying the type of loan you require.
Learn more about the ten types of business loans available to small business owners here.
3. Assess Your Credit History and Assets
Startups in their initial stages of life face a greater challenge when it comes to securing a loan.
Entrepreneurs will likely have to rely on their own personal credit history when applying.
For this reason, assess your credit score and history now. Simply having a stellar score may not be sufficient here. Credit built over more extensive time, such as ten to fifteen years, is more noteworthy than short-term credit.
Assess your current assets, too, for potential use of collateral in requesting a secured loan.
4. Take Steps to Improve Credit
Your personal credit history may be considered when you apply for a business loan. For this reason, when seeking startup funding, take steps now to improve your credit.
This means eliminating as much existing debt as possible. Ensure you are making credit card payments on time. Consider consolidating your existing debt into one singular loan.
It also means inspecting your current credit report for errors. In addition to third-party websites offering unlimited free credit reports, every consumer is also entitled to one free, complete credit report per year. Learn more about obtaining yours here.
5. Know Your Niche
Applicants are more likely to be approved for a loan if they can demonstrate where they fit in a specific industry. Knowing your niche and your market well can help you craft a more competitive application.
Simply requesting funds for an incomplete or vague product concept won’t get you very far. Lenders are picky about their applicants, especially when it comes to business loans.
Once again, establishing a business plan prior to applying for a loan can help in this regard.
6. Research, Research, Research
No two business loan lenders are the same. Before you begin applying for a startup loan, take the time to research your options.
Luckily, you can narrow your options down simply based on the type of loan you require. Only a few select lenders offer Small Business Administration startup loans, for example.
Make sure you meet basic requirements, including revenue and credit score requirements, before making note of a potential lender. Read consumer and professional reviews of select lenders prior to making any decisions.
Some lenders will offer pre-approval terms without requiring an agreement. If possible, get pre-approved with various lenders so that you can compare rates.
7. Scrutinize All Offer Terms
When comparing rates for your business loan offers, scrutinize all terms. Keep in mind that a low-interest rate does not guarantee a loan ideal for your situation.
Some lenders have steep repayment terms, for example. Others may involve maintenance fees or require consistent high credit.
Do not agree to any terms that do not absolutely meet your financial needs.
8. Consider Alternative Financing Options
Some entrepreneurs seek out alternative financing options, particularly if they have trouble acquiring a loan on personal credit.
These include crowdfunding through platforms like Kickstarter and/or applying to grants. Both give prospective business owners a chance to obtain the startup funds they need to get a product to market.
9. Secure a Business Partner (And Co-Signer)
If a business loan feels out of reach for any reason, consider securing a business partner.
Partners typically act as co-signers on loans, enabling you to overcome limited credit history and other obstacles.
Deciding to launch your business with a partner can be a challenging choice. Make sure you need a co-signer before you commit to a partnership of any kind.
How to Get a Loan for Your Startup
Funding can be the linchpin of every startup’s journey. Acquiring the cash to launch your corporate vision doesn’t have to be an insurmountable challenge.
When it comes to how to get a loan for startup purposes, make sure you know your business plan, financial needs, and projected expenses ahead of time. Research lenders wisely depending on the type of loan you require.
Be mindful of your personal credit and consider alternative financing options if necessary.
For performance-based business consulting, contact The Business Turnaround Group.