It is difficult to get a loan if you don’t follow the procedures or don’t have the necessary documents. First rule is to not assume that you will get a business loan so explore your options. Make sure that you actually really need financial assistance before applying for a loan as you don’t want to end up in debt and without a business.
It is important to estimate exactly how much you will need to get you started. Do your research and have your business plan ready. You need to be able to go to the lender with a justifiable amount.
Here are some basic do's and don’ts of taking out a business loan to help you prepare:
1. Do determine if your business is feasible
You have to convince the lender that your business is worth the investment even if it’s the bank that you approach for assistance. The longevity and sustainability of the business needs to be clear and your business should have some originality so you can justify what sets your business apart from others in the same market.
This is why it is important to have a detailed business plan that shows that you have done your research. A clear indication of growth in the business is a must meaning that you should be able to anticipate changes in the economy and trends therefore a financial forecast will be crucial in the business plan.
2. Do build and maintain a positive credit record
Banks often look at your personal ability to pay back your debt and whether your accounts are in good standing e.g. payments made on time. It is best to have debt in the form of opening an account to improve your credit score so you don’t appear as a lending risk to lenders. However, don’t max out your credit cards every month.
3. Do have assets and surety
You need to know which assets you are willing to use as collateral so that the lender can have surety that in the case of not being able to pay back the loan they can use your asset as security for the repayment of your loan. With that said, having tangible assets helps to secure your finances as well as a trustworthy surety. However, you have a responsibility of knowing how much your collateral items are worth.
4. Do have a lawyer
This means that you should check with an attorney before signing any legal documents such as a loan agreement. They can also help unpack the
legal obligations of your contract with the lender before binding yourself to the agreement.
5. When not to get a loan
Don't get a loan if:
- You don’t really need one.
- You can’t make ends meet personally.
- Your taxes are not up-to-date, as a business owner you will have to be knowledgeable about tax implications. If you can’t comply with taxes then there is no guarantee that you would comply with your loan agreement therefore submit your tax timeously.
6. Don't hide useful information
Disclose any vital information upfront because transparency is very important therefore keep every piece of documents that the lender could possibly ask for. It’s also works to your advantage if you honest.
7. Don't underestimate your expenses
You need to find out exactly how much you will need and be able to justify how you got to that amount.
8. Dress appropriately
Looking responsible and organised is key when meeting with your potential lender. First impression really do count so make it a memorable one therefore dress and act professionally.
Make sure that you actually really need financial assistance before applying for a loan as you don’t want to end up in debt and without a business.