The first step towards applying for funding is knowing for sure that you are ready, indeed, to make the leap. Depending on the amount, taking out a loan can be a big step for most small businesses. Therefore, it is important to do your due diligence and get all your ducks in a row.
There is perhaps only a few times in life when crossing your “T’s” and dotting your “I’s” can be so important. The following are some important steps that any business owner, large or small, will be expected to take to qualify for business financing.
Get Things in Order
The first order of the day is to get all of your business funding in order. This includes cost, expenses, profits, taxes and just about anything that has to with money. Obviously, this means all of your bookkeeping should be up to date and clean as a whistle.The important thing here is that you should be able to provide any expected or unexpected financial information that bank may ask you. This is not the time to experience any bumps or hiccups when anything finance related is requested by the bank. Nothing gives the banks the jitters as much as perceived financial irresponsibility.
Assuming all of the paperwork regarding finances are in order and you are ready to go, the next step is to provide balance sheet reports as well as profit and loss numbers. This is actually one of the easier things to accomplish if you use a professional accountant or accounting software. Profit and loss statements essentially show revenues for a given time period. When several of them are looked at, the bank will have a good idea what kind of profits the business is capable of.Balance sheets, on the other hand, show the assets and liabilities the business has on its record. Assets could be equipment, property, building, cash, or any other inventory or object that has actual financial value. What the bank is looking for here is, if for whatever reason you cannot repay the loan, they will sell an asset to get back their money. Liabilities, on the other hand, are all about what the business owes. This could be credit card debt and accounts payable.
The All Important Credit Score
Businesses, like people, will have a credit score. Just like regular credit scores, it will be a number that shows the businesses ability to pay back loans. However, the data used to calculate will be little different from personal credit scores. For example, FICO, which is in charge of collecting data that is used in credit score calculations, will use data such as a number of employees and the age of the business to arrive at a number. In fact, a recent study showed that businesses who know and understand their business credit score are more likely to get approved for business financing.
End Goal and Reviewing Offers
This may seem obvious but the time has come to discuss what exactly is needed for the business. This is when you should have a specific number in mind before you can start asking for small business loans. Generally, it is better to go with the amount you need and not overshoot.
The higher the amount, then more likely the application will get rejected. Once the amount needed for business financing has been figured out, it is time to start the shopping around the process. This is the time to be very cautious. Even if a good offer comes your way, it is still a good idea to look at other options. Most people looking closely at financing will spend a long time doing so. This is because one bad loan can spell doom for the business. The key thing to remember here is that banks are only interested in getting their money back. Therefore, be extra cautious if a loan looks too good to be true.