More often than not, small business owners need a source of capital before their business takes off. While the lucky ones have all the money they need, most of the time, others are faced with the decision of applying for a small business loan.
When small business owners apply for a loan, there’s a chance they might not be approved if they aren’t fully prepared. So here are three ways to prepare for a small business loan application:
1. Keep Track of Your Credit Score
Potential lenders look at your personal credit score. For them, how you manage your credit card debt is an indication of how you are going to manage a $150,000 loan. Of course, your business credit score is also important to lenders. Make sure to separate your business and personal finances before you apply for a loan. Your credit history must also be free of errors. If you do find something wrong, work with a credit agency to help remedy the problem.
2. Determine How Much You Need to Borrow
A good lender won’t just hand you a loan for funding a business that’s better met by credit cards. Nor would they want to see your business struggle with a huge loan. For this reason, lenders look at your financial statements and determine your DSCR or debt service coverage ratio.
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It really helps to do the same – determine your DSCR before applying. With a help of an accountant, knowing your DSCR strengthens your loan application and makes for a very compelling case. All the lender has to do is to verify your DSCR and then finally, send you the money.
3. Don’t Forget the Business Plan and All the Necessary Documents
An easy way to stay on top of all documents needed is by using a document management system (DMS).
While it’s true that you can show up with a lender appointment with only an executive summary in hand (a summary of your entire business plans and a handful of financial documents), it pays to have a good first impression. It’s best to come armed with a comprehensive business plan complete with the concept, target market and marketing plan, competitive landscape, and the financials – the most important part of the loan application.
The banks will double-check your income, so it’s better to come prepared with all the necessary financial documents. Here is a list of what you’ll need:
- Printed documents of all your assets and debts
- Updated records of your taxes from the last two years
- Profit and loss sheets from your bookkeeping software or your accountant
By having these documents ready, you will be able to answer the lender’s questions confidently. It goes to show that you are well-prepared and ready to prove the potential of your business.
When applying for loans, you have to make informed decisions. SMB Compass helps small business like yours to get the funding you rightly deserve. They’ll help fund your business and give you tips on how to run it. Feel free to contact them through email [email protected] or via phone (646) 569-9496.