You’ve come up with the perfect idea and decided it’s time to take the leap and start your own company. You’ve even scouted the ideal location and know exactly what you need to get your great idea off the ground. Now all you need is an influx of cash, and you’ll be in business.
To help you get started, we’ve created this handy checklist of eight things you should do before you apply for a business loan.
1. Create a Business Plan
You may have everything outlined in your mind, but it’s time to put it to paper. A solid business plan is “the blueprint that not only will guide the business owner,” according to an email from a spokesperson at the U.S. Small Business Administration (SBA), “but also will serve as evidence to the lender(s) that [the entrepreneur] has a clear idea of what they want, where they want to go, how to get there and, most importantly, demonstrate their ability to repay the loan.”
2. Educate Yourself
Taking on your own business venture requires a lot of time and effort, so you want to make sure you’re as prepared as possible. The SBA recommends that you “educate yourself regarding business loans so you can understand and discuss intelligently with the lending officers when the time comes.”
3. Research Lenders
There are several options out there, so you should do your research ahead of time and carefully choose the lenders that could be right for you and your business. The SBA recommends approaching banks or other lending institutions you’ve worked with in the past or with whom you’re a customer, as this gives you the advantage of already having an affiliation instead of starting a relationship from scratch.
4. Ask Questions
Once you narrow down the list of places where you’re considering applying for your loan, inquire about what types of loans they often approve and what sort of requirements they have. Wherever you apply, make sure you bring everything they ask for, as the SBA says “many loan applications get denied or face unnecessary hurdles because of incomplete applications.”
5. Gather Other Important Documentation
Your business plan is the first piece of important documentation you’ll need before you apply for your small business loan. But, as you’ll find out in researching your different lender options, the paperwork you’ll need doesn’t end with your plan. Each lender will likely have different requirements, so it’s good to ask for the specifics so you’re fully prepared. The SBA says some of the things you’ll likely need include:
- Your personal credit history, as well as business credit history, if applicable
- Personal and business financial statements (as well as projected financial statements)
- Cash flow projections for the first year (at minimum)
- Personal guaranties from the principal business owners
6. Clean Up Your Credit, If Needed
As mentioned, you’ll need to provide your credit history, as this will show lenders your track record of repaying loans. If you don’t know where your credit currently stands, now is the time to find out. You can get free copies of your credit reports every 12 months from the three main credit bureaus — Equifax, Experian and TransUnion — by visiting AnnualCreditReport.com. If you discover any errors or problems on your credit reports that you need to dispute, this guide will help you through that process.
Beyond that, if your credit isn’t quite where you’d like it to be, you can typically improve your scores by paying down high credit card balances and limiting new credit inquiries while your scores rebound. (To see how these behaviors are affecting your credit, you can review your free credit report summary, updated every 14 days, on Credit.com.)
7. Decide How Much Money You’ll Need
You can use your business plan as a road map to help you decide how much money you’ll need for everything from general startup costs to employee wages. According to the SBA, “small businesses come in many sizes, from a startup of a one-person company to hundreds of employees, and their financial needs vary accordingly.”
8. Reach Out for Help If You Need It
There is a lot to do to get a business off the ground, including figuring out how to apply for a loan (and, ultimately, getting the loan). If you have questions along the way, there’s likely a national or local support organization that can help you out. The guidance of these experts can help you avoid any time wasters or costly mistakes before heading to the lender.