Entrepreneurship in America is growing by leaps and bounds. In a report released by the U.S. Bureau of Labor Statistics, small businesses are a major factor in the continued growth of the country’s economy. However, while the creation of small businesses is on the rise, entrepreneurs still face the challenge of finding the capital to get their interests going. If you are ready to launch your own company and are ready to approach the lenders for a loan, there are several steps you should consider taking before you sign on the bottom line.
1. Draft a Business Proposal
While all lenders operate under different guidelines, many have similar criteria for granting small business loans and any lender you approach will most likely want to see that you have drawn up a business model to help them gauge whether you qualify. Your plan should include an executive summary, a brief description of the company’s products or services, how you plan to market your business, and an operations and management plan. Having a proposal in hand may help you talk about your plans with more confidence and answer questions loan officers pose to you without wracking your brain for an answer.
2. Obtain Your Credit Report
One of the first steps a lender may take before deciding whether to grant you a business loan is to run your credit history. This history includes information about how many lines of credit you currently hold, such as credit cards, whether you are currently paying off a mortgage, or if you have student loans, along with information about how timely you pay on these accounts. Lenders will also be able to see how many credit inquiries you have made, such as if you have recently applied for a new credit card.
Obtaining a copy of your credit report before a lender runs your credit history can help give you the opportunity to review your credit and dispute or correct any errors. If anyone has tried to obtain credit under your name, this information will be on the report as well. You are entitled to one free credit report per year from any of the major credit reporting sites, and perusing a copy before you try to get a small business loan may prevent any nasty credit surprises during the lending process.
3. Seek Out a Mentor
This step may be of particular importance if you are a young entrepreneur who is trying to start a business while you are still in college or have recently graduated. Having a business mentor who can advise you on which lending pitfalls to avoid or let you know what paperwork you will need to complete before you seek out a loan may help make the lending experience less stressful. A number of small business organizations, such as the U.S. Small Business Administration, may be able to help you find a mentor in your area.
4. Find a Lender That Best Suits Your Needs
While you might be tempted to visit your local bank in order to secure a loan because it is familiar, it may not be the best fit for your needs. Instead, take the time to research a variety of lenders, from credit unions that typically offer a lower interest rate on loans if you are a member to alterative lenders that specialize in offering small business loans. Conduct extensive research on each company and make notes about what they offer so you can compare them and make a more informed decision about which is the best fit for you.
5. Prepare a Positive Mindset
Before you head off to secure your loan, the final step is to put yourself in a positive mindset so you can hope for the best yet prepare for the worst. Hoping for the best will help you appear confident and capable, and preparing for the worst will help you accept setbacks, such as if the first lender you apply with turns you down. Your overall attitude about this process can have a profound effect on its success, so staying positive is important.
If you do happen to get turned down the first time you apply, use the experience to your advantage. Ask the lender why you were turned down and what you can do in order to improve your chances of securing financing in the future. The more errors you can erase during the process, the better prepared you will be the next time you apply.
Venturing into the world of entrepreneurship and small business loans can be a daunting experience. However, following these five steps and taking the time to prepare can help to increase your chances of success.