As a new entrepreneur, applying for a business loan may prove challenging and difficult, but if you know what small business lenders are looking for in new entrepreneurs, you will have ample time to get ready for the application process and increase your chances of approval. The following are the different criteria lenders look into, to decide on whether or not to grant you a loan as your start-up funds.
Small business lenders would like to see the viability of your business. As a new player in the industry, a business plan is essentially required, as it presents the potential profitability of your business. It will also show why you need the loan, along with your schemes, plans and strategies on how to properly invest the finances. Your plan should also reveal valuable facts and detailed credentials about your business in a brief yet concise way, such as ownership, number of employees and operating hours.
Projections of Cash Flow
Monthly cash flow projections of the business for the first 24 to 36 months are also necessary. A summary of it will help explain how loan funds will be utilized. You must also provide specific aspects of your current working capital situation and at the same time introduce differences from your competitors. If the following are appropriately met, then you have a good chance of obtaining the loan you need. Preparing cash flow projections will also provide lenders enough financial data to evaluate the risk involved. A lender's most important concern then is if you have the capability to pay back what you borrowed.
Collaterals for the Loan
Since business lenders need the assurance that the loan will be repaid, it is an advantage if you have collateral you are willing to offer at an evaluated and estimated value to pledge against the debt. Collateral can be in form of tangible assets such as real estate holdings, cars, and other valuable equipments or physical resources you are prepared to sell to be used in repaying the loan in case your business fails. Your willingness to risk your liquid assets is also another thing to consider. Lenders would like to know if you are a good risk taker as well.
Personal Financial Statements
Your personal assets and liabilities, monthly obligations and even your personal tax return for the past years might be included with the requirements. By evaluating the following concerns, lenders will most likely determine if you are capable of paying back loans granted for your business.
Personal Credit History
Your credit history is also another serious thing lenders would like to scrutinize. A good or bad credit standing can definitely influence the lenders assessment of risks as they will carefully review your credit records. Before you go on an interview with a lender, first know your credit history and make sure to give legitimate explanations regarding late payments if there are any.
During the interview, you must always support your statements with affirmative answers, as it will help you prove to them that you are committed to whatever plans, decisions and goals you've made for your business.