As you well know, a small injection of capital at the right time can make all the difference when running a business. For example, it can give you the necessary amount to fund a new startup, giving you the resources to get a project off the ground.
Alternatively, you can invest the amount into an existing business to help it overcome a challenging financial period or expand your current operations.
Business loans are the perfect tool to help your business get started. However, obtaining a business loan is sadly not as simple as asking for the money. You have to present a compelling case that convinces the lenders of your credibility and potential for success.
A winning application requires careful planning, thorough research, and a clear understanding of what your target lenders are looking for. This guide contains the essential steps to create an application that stands out from the crowd, maximizing your chances of approval.
Understanding Lenders
Before you start writing your application, it’s best to learn more about your target lender and their requirements. Look at things from their perspective to better understand their requirements.
Different lenders can have differing requirements, but they do share some similarities. They generally require a solid business plan to get a gist of where you’ll be spending their money. They also check for a demonstrated ability to repay a loan and a good credit history to assess the likelihood of a default and the risk factor of the investment.
Some loans may also require collateral, an asset, or assets promised to the lender in case you fail to repay the loan. All lenders want reassurance that the borrower is a responsible and viable investment for their funds.
Building a Compelling Loan Application
The standard business loan application has three general parts: the executive summary, the business plan, and the financial and legal documents. Here are some best practices for each!
1. Executive summary
The executive summary is the lenders’ first impression of you. It’s a brief overview of your business objectives and why you’re seeking funding. Imagine that lenders go through dozens of applications a day, so you want to make yours succinct but punchy!
Your summary should highlight your application’s strengths, such as market opportunity and financial projections, to entice lenders to dive deeper into your application.
2. Business plan
If you pass the first check, the lender will then examine your business plan. Essentially, here you explain how your business operates and its target audience. You show your analysis of the market and growth strategies to justify your loan request. This also contains what you plan to do with the loaned amount, so it’s best to be thorough.
When you take a business loan, you promise the lenders a return on their investment. Your business plan should support that promise and show that you’re more than capable of repaying the loan because you’ve done your due diligence.
3. Financial and legal documents
Lenders will often require a slew of financial and legal documents to support any claims and assess your business’s viability. When fulfilling requirements, expect to turn in tax returns, balance sheets, income statements, and pertinent permits. There may also be forms you need to fill in.
There’s not much room to be creative here, but you should at least ensure you have everything ready and take the time to fill in any forms carefully and accurately.
Guarantee Access to Capital
Applying for a business loan can feel daunting, particularly for first-time borrowers and small businesses. However, there’s no need to worry as long as you’re careful. As long as you follow their guidelines and prepare thoroughly, it’s well within your reach to get a loan.
