6 Crucial Things You Should Prepare Before Applying for a Startup Business Loan

Securing your finances is integral in turning your startup idea into reality.

Luckily, there are various ways to raise funds for your business. You can use your savings, pitch to an investor, or apply for a business loan.

Among these fundraising options, applying for a startup loan is one of the common ways to finance your business. After all, it eliminates the need to exhaust all your savings and requires less process than meeting with an investor.

But applying for a business loan is easier said than done. That's why we are sharing the six things you should do and prepare before applying for a startup business loan:

Know Your Options

Applying for a loan does not mean that you should bring your documents to the bank. Instead, there are various financing options you can do depending on your capabilities and needs.

●      Equipment Financing. This refers to borrowing money meant to buy equipment and machinery.

●      Line of Credit. This is an unsecured loan wherein you can use your business credit cards to kickstart your business.

●      SBA 7(a) Loans. This is when the US Small Business Association guarantees and approves your loan application under the SBA program. One of which is the SBA 7(a) loan.

●      SBA Microloans. These are small business loans made by SBA-approved intermediaries. An example of this is community development financial institutions (CDFIs).

●      Invoice Financing. This is ideal if your clients pay you through invoices and want to receive your loan within the day.

Here's the thing: Knowing your financing options is not only meant to kickstart your business. You can also use it to prevent bankruptcy and ensure that your startup will stay afloat.

Determine How Much You Need

Aside from knowing what startup financing you can do, it is also imperative to determine how much you will need. That's because your lender will ask about it.

Luckily, this is a straightforward process. What you should do is calculate how much it will cost to meet your loan purpose.

Do you need a loan to upgrade your machines? If so, how much will that cost? That amount is what you need to look for.

This is not just to make your loan application as convenient as it can be. Determining how much you need prevents you from borrowing money that you cannot pay.

Know the Requirements

Of course, you can get your startup loan unless you apply for it. However, varying lenders and programs mean different requirements.

This is why you should know the requirements you need to prepare before applying for your desired loan. Regardless, there are some factors that you should consider:

● Credit History. Businesses have an established credit history that lenders can look up through the credit bureau. As for a startup, they will likely check your personal credit history.

●  Business Plan and Sales Strategy. This can help you prove that your business is off to a good start.

In addition, your lender might require you to prepare the following:

●  Bank account where the lenders will deposit the loan.

●  Relevant legal contracts (i.e., franchising and licensing)

●  Bank statements, credit card sales, unpaid invoices, etc.

●  Personal and business tax returns and supporting IRS documents.

●  Updated business plan and future cash flow and costs

Know Your Collateral Capacity

Depending on the kind of startup business loan you are looking for, some lenders require collateral. Hence, you should look into your assets.

From there, calculate how much your collateral is possibly worth. That's because lenders are likely to look at these numbers. It can also help the lenders determine whether they can loan you your desired amount.

Prepare Your Business Plan

As mentioned earlier, you need to prove that your startup is off to a good start. This is where your updated business plan can come in handy.

However, your business should be more than just detailing what company you will set up and your target market. You should include your marketing and sales strategies.

Another item you should include in your business plan is a financial forecast if you have the financing you need. List down the action plans you will take if you have the funds to run your startup like a well-oiled machine.

That's because lenders would want to know whether you can pay them back.

Organize Your Financial Statement

Aside from your business plan, you will also need to present your financial statement. This includes your cash flow, income, and balance statements for at least the past three years. Other financial statements you should include are your tax statements, IRS documents, and bank records.

Previously, we have mentioned that most businesses have an established credit history. This is something that lenders look into to see whether you have the capacity to pay your loans back.

But what if you are yet to start your business? The lenders will look into your credit history. So, if you want your business loan application to be approved, make sure to fix your credit score.

Conclusion

Many of us have fantastic ideas that, once implemented, can lead to the creation of a business empire. The only thing that hinders you from turning that idea into reality is your lack of capital.

Luckily, there are various lending and financing options you can choose from. Sure, it can be challenging. But that does not mean that getting approved for a business loan is impossible.

To make your startup idea come to fruition, take the tips listed above by heart. That way, you can apply for a startup loan and get approved without hassle.