Your business idea is just an idea at best if you have no finance to bring it to fruition. Every business needs funding to carry out its projects. Most times, banks prefer to award loans to larger companies who are in a better financial position, leaving small businesses more or less in the dark. This lends credence to the old cynical joke that banks only lend money to those who do not need it.
However, sometimes it could be that small business owners are going about the loan application the wrong way. Banks will ask a lot of you when you apply for a loan so you need to make sure that you have all you need to position yourself in the best way possible to qualify for a loan.
- Have your collateral ready
You need collateral if you want to stand any chance of being considered by the banks. You have to make sure that whatever you pledge as collateral is an asset appealing enough to be accepted as collateral considering the amount of finance you are applying for.
It could be anything from cash receivables to inventory. For small business owners, the need for collateral may often mean that they have to pledge their personal assets such as house equity to be able to get a loan. Whatever the case, makes sure that you have it ready and are willing to use is as collateral before you apply for the business loan.
- Business plan
With the exception of a very select few, all small business loan applications require that you present a business plan document (see https://www.merchantmoney.co.uk/small-business-loans/ for more details).
Gone are the days when your business plan needed to be 40 pages long, but it does still need to contain all the necessary information. Stuff like your financials and other pertinent information concerning the company summary, marketing, sales, team and exit strategy.
- Exhaustive details on accounts receivable and accounts payable
This information is necessary because the banks want to make sure that your business chain is trustworthy. They want to ensure that the people you do business with (people who sell to you and the people you sell to) are credit worthy. This means to them that your business will be profitable, which will help to something their stance on rejecting your application.
- All your personal financial details
This includes everything from net worth, assets and liabilities statements (like your car, home, investments, loans, mortgages etc), social security number, the whole nine yards. If you have a partner or partners, the bank will require all this from them too. All this usually leads up to you signing a personal guarantee, as a part of the loan process, so be ready for that.