If starting up a new business was as easy as having a great idea, the world would be full of entrepreneurs. Having a brilliant idea is only half the battle in business – the other half of it is finding the resources to turn your vision into a reality. Depending on what your business idea is, you might be facing a series of startup costs. If you need staff, they’ll all need paying for – as will the office they’re going to work in! If you’re planning on physically creating items for sale, you need material costs, and perhaps even the tools to make them with. Even if your business is just you, working online alone, chances are you’ll encounter some marketing costs while you try to get the word out about your products and services.
All of the above costs money, and therein lies the problem for many would-be startup business owners. You know your business will make millions, but as you haven’t had the chance to make money yet, it isn’t in your bank account to spend! That’s where startup business loans come in.
Getting a startup business loan can make or break for your business. Get the right one, and you’ve taken a solid first step toward success. Get the wrong one – or get rejected for any lending at all – and you may never get your idea off the ground. That’s why you owe it to yourself to make sure that when you apply for a business loan, you have the best possible chance of getting your finance application approved. In the UK, potential business owners can apply directly to the Government for help, although the terms are quite restrictive. You can do that by following these tips!
- Improve Your Personal Credit Score
In an ideal world, we’d all have credit scores above seven hundred, and obtaining credit would be easy. We don’t live in an ideal world, though, and even having a perfect credit score isn’t a guarantee of success. Many people have had issues with credit in the past, and you can make an argument that entrepreneurs are more likely to have bad credit than anyone else. Entrepreneurs are risk-takers, and may have lost money on ideas in the past before trying something new. That isn’t great when you’re asking someone to lend you money again.
Lenders are not gamblers. In the distant past, anyone could get a loan by going into a bank and making confident assurances to a bank manager. Now, banks and lenders will go by the book, and our credit scores are that book. A business lender doesn’t look at finance like an online slots game; one where they keep paying money in and wait for one of their bets to pay off. They will, however, look at your credit score like the return to payer rate of a slots game. In UK slots on a casino website such as Lion Wins, the return to payer rate determines how much of the total money paid into the slot is eventually paid back out in winnings. Slots with low return to player rates don’t attract many players, and credit scores that suggest low returns for lenders don’t attract much lending. Catch up on bills you’re behind on, and try not to have any missed payments on any credit commitments for at least twelve months before applying for finance.
- Polish Your Business Plan
Writing a business plan for the first time is a difficult process. The way your plan is written up might make perfect sense in your head, but if it arrives in a format that your potential lender can’t follow, they’ll likely dismiss it without giving it a full read. There are certain elements that all good business plans should have, including analysis of competitors, details of your unique selling point, forecasts of financial returns, and detailed and itemized spending plans for every dollar you wish to borrow.
Your business plan needs to communicate the fact that you have a masterful knowledge of your industry, and that you’ve thought of and safeguarded against all possible risks. It shouldn’t just make your business sound exciting; it should also make it sound safe. The less risk your plan communicates, the more likely you are to get the lending you’re looking for. It should also be easy to understand. Have friends look over your plan for you. If they can’t understand aspects of it, you may be pitching incorrectly. You should spend a great deal of time on this, and perhaps even consider paying for professional assistance to ensure you get it right.
- Don’t Get Caught Wanting For Paperwork
Nothing will make you look more amateur than not having the right supporting documentation available when you’re asked to provide it. Even if you have a perfect credit score and a great business plan, you’re going to need more than that to persuade a business lender to part with their cash.
You are the guarantor for your business. That means you’re going to be forensically assessed when it comes to your ability to repay. Your chosen lender is likely to want to know full details of any assets you own, your employment history, your tax returns, and your savings. You should have bank statements covering at least a year printed out and ready, and explanations for anything on them that might prompt questions. If your business requires you to have licenses or professional qualifications, make sure you have evidence of them to hand.
- Don’t Just Go Straight To The Bank
Your bank is just one of many lenders who are out there. They may or may not specialize in business lending. They may or may not have restrictive conditions on lending. They’re definitely not the only option for you and your business. Even though you’re asking for money, remember that you’re also a customer. When your business succeeds, your lender will be profiting from you in terms of the interest they receive on top of your loan repayments. It’s as important that they offer you the right deal as it is that you offer them the right proposal. Lending conditions can vary dramatically from one provider to the next, and so it’s important that you don’t just try to sign up at the first place you visit.
It’s also important to point out that some lenders specialize in lending to those with poor credit. Even if your credit score is poor, some lenders will still consider giving you the money if you can make them believe in the plan. Giving yourself the best chance of finding a loan means making sure you reach the right lender! A professional broker may be able to help.
- Fully Commit Your Own Resources
Whenever you’re asking a lender to lend you money – for any reason – you’re asking them to take a risk on your ability to repay it. If you have resources of your own which you’re not using, they’re entitled to ask why they should take the risk if you’re not doing so yourself. If you have equity in a property, you should use it and factor it into your plan. If you have existing lines of credit, you should also commit them to the plan. If you go to a lender and ask them to give you $50,000, but then can see that you could raise at least $50,000 by refinancing your home, you’re telling them that you don’t have enough faith in the success of your plan to take the risk on your shoulders. That will almost certainly lead to them backing away from lending to you.
There is no 100% guarantee off success when applying for business finance. If there were, we’d give it to you here. Tidying up your credit, committing yourself, and presenting a fully committed and costed plans are your best allies when the time comes to apply – and don’t forget the paperwork, either!
To read more on topics like this, check out the business tips category.