If you’re looking to start a small business and you don’t have a trust fund, wealthy friends, a mega-rich godfather or haven’t won the lottery, chances are you’ll more than likely need a small business or bank loan. This means tons of paperwork and personal time. It’s a process that can take months to get a green or red light and even longer to pick up the cash.
So how do you avoid getting rejected, cut the wait time in half and save yourself the misery of drowning in a sea of paper? Here are all the tips you’re going to need.
If it’s a bank loan you’re going after you’ll need careful, meticulous documentation, and to pay attention to detail. Beginning with the loan application form. Whether you’re filling out forms online or walking into a bank to fill them out, you should always remember NOT to hit up as many banks as possible. More is not better.
Rohit Arora, co-founder and CEO of Biz2Credit, an online resource that connects small business owners lenders says, “Applying for loans at multiple institutions can be harmful because each one will do a hard pull of your business credit history. The more hard pulls, the less chances you have of getting money because the banks interpret it as a sign of desperation that you are shopping around. Thus, they will question your creditworthiness.”
Bear in mind that you’ll also have to provide as much personal information as you can. And that includes aliases and, yes if you have one, criminal record.
You should also have a business plan, although this is debatable. If you’re opening up a home-based business you won’t need a 50-page document, but if you’re taking your idea or your business big time, you’ll need to provide a detailed explanation of what your business idea or model is and where you’re planning to take it.
A Personal and Business Credit Report. Yes, three of those. You’re better off contacting all three major credit rating agencies before submitting a loan application, because your lender is going to pull one anyway. You should do your best to clear up any discrepancies before beginning the loan application process. If your business credit score is 600 or lower, it’ll be harder to secure financing from a bank or credit union.
Arora says you can clean up your business credit by “clearing up past-due debts, opening business credit cards, and paying the monthly balances in full and on time.”
Your Income tax returns and Financial statements. Lenders typically ask for a year of personal and business bank statements as part of a loan package.
Unfortunately, you may have to put down some sort of collateral, especially if there is a high degree of risk associated with your you or your business.