Whether you want to start your first business or need to grow your current venture, applying for a loan the first time around can certainly be a daunting process, particularly when women are unfortunately often still looked down upon in the area of finance.
When you add in the fact that funds have become more difficult to secure from banks than they were a decade ago, and that markets around the world are quite volatile these days, it’s even more important to be aware of the best ways to go about obtaining funds. To help you increase your chances of success when it comes to business financing (and to reduce the stress of doing so), read on for four steps you should take today.
Know What You Want to Use the Funds For
There are many questions to ask yourself about your business financing needs, but one of the first should be: what do I want to actually use the funds for? Before you even start to fill out business loan applications, you should first spend time really thinking about if you do need additional funds for the business, and if so, what the cash will be spent on.
When you deal with banks and other lenders, you’ll find that they always want to be clear about the ways in which funds will be used. They look to see that an entrepreneur’s reasoning is sound, and that the capital injection will be used to impact and grow the company in a sensible way, rather than propping up a failing venture, being used to buy unnecessary assets, or to pay for over-the-top office fit-outs or extensions.
Some of the best uses of business loan funds are things such as:
- Financing an essential real estate or capital purchase
- Covering large seasonal sale variances
- Developing software, products, or services which take time to create but pay big dividends in the long run
You might also want to use the funds to grow your business through various marketing channels or by targeting a new demographic. For example, if your current main customers are mothers between 25 and 40 who shop from home, but you have seen many enquiries from single, career-driven women who shop in their lunch break at the office, you could benefit from a specific advertising campaign to target these potential clients.
Plan in Advance
Another good way to secure a loan for your small business is to plan things out in advance. It will make a big difference to your approval chances if you take the time to build relationships with key contacts at lending institutions before you actually need to put in an application.
While it’s sad but true, many lending officers tend to be men who are inclined to approve applications from other men, rather than women. As a result, it pays to take the time to develop contacts in the right places who can see your business acumen and drive. You should try to always think about the loan process before you actually need the funds.
Attempting to secure a business loan under tight time constraints, when you’re desperate for the cash, can negatively affect your chances of success in other ways. Being faced with a short deadline and lots of stress will typically mean that you don’t do such a thorough job on your application, and may result in you rushing through the collation of data and filling out of forms.
Tight deadlines can also cause you to opt for the first lender you look at, rather than spending time to shop around for the best fit for your needs and the best available deal. You may prefer instead to find a lender that specializes in providing loans to businesswomen, or that targets your particular industry.
Prepare Your Financial Documents
You won’t get anywhere with a loan application if you don’t have all the necessary financial documents in place when you submit your paperwork. Lenders won’t consider approving an application if they can’t read over your current business (and potentially personal) accounts, and see your financial projection and plans for upcoming years.
They need to see that you are a safe financial risk for them and that you will have the capacity to pay back funds on time and in full. Up-to-date financial records are an important step in proving this to them.
It is a good idea to not only have your business books in order, but also your personal information. If your venture is yet to launch, or only in its early stages, you will typically have to provide collateral as security, and will need to show that you have personal assets, and a solid financial history, to do so.
Before you submit any loan application, ensure that tax returns for both yourself and the business have been completed and are up to date (preferably for the last three to five years). Also have business accounts in order that show things such as profit and loss statements, balance sheets, depreciation schedules, sales projections, and the like.
Write a Comprehensive Business Plan
Lastly, another document that most lending institutions will want to see before they approve a loan application is a company business plan. This plan should:
- Be comprehensive and up to date (so nothing that you wrote ten years ago!)
- Show them that you have done your research on your industry and competitors
- Demonstrate that you know your customers
- Highlight your goals and mission statement
- Explain your SWOT analysis that details the strengths, weaknesses, opportunities, and threats for your venture
Business plans helps lenders to see that you have seriously considered the roadmap for your business, and that you aren’t rushing in to try and expand your business when the foundation isn’t there yet.