There comes a time when operating a business that the owners need money to expand, and they will need to apply for a small business loan. Whether they are successful at receiving the loan or not depends on how they go about obtaining this loan. Business owners can follow specific steps that will give them a better chance at being approved for the loan, and they will find those steps below.

Prepare

People will never hand over their money to others just because they ask for it; these lenders will want to know the answers to a few questions first. All lenders will be the same in this regard because lenders are also in business, and they would like to see a return on their investment. In order to do this, they need to ensure that the people they are giving their money to have the best chances of paying the money back. Business owners can put their lenders’ minds at ease by coming to their meetings with the documented proof the lenders will require.

A Well-Written Business Plan

When business owners determine that they need a small business loan for a project, they will have a plan for how the money will help them accomplish their goals. They will also know what they expect the outcome to be. To encourage lenders to lend them the money they will need to implement their plans, they will need to do their research. Then, they will have a business plan that will clearly spell out how the money will be used. This is one of the main questions that lenders have in mind when people ask them to loan them money, “What are they going to do with it?” Answer this question fully and then business owners can move on to the next concern.

A Good Risk

The next concern is how likely the business owners will be to repay the loan. Lenders are in the business of making money, and they don’t want to lose it by giving loans to bad risks. Therefore, business owners will need to be prepared to demonstrate how they are a good risk by presenting the research that supports their future revenue projections. For example, the business owners may be expecting their expansion to cause them to earn more money. If they can show the lenders that the money will help them to increase their revenue, the borrowers will have future money with which they will be able to repay their loans.

Debts and Assets

A business that has more assets than debts will be a better risk for a lender, and the business owners that show their lenders this is the case for them have a better chance of receiving a loan. Lenders tend to be wary of loaning money to people who have several creditors to pay because they become concerned that borrowers with several creditors might begin to have trouble paying everybody, and they will lose their investment.

Tax Returns

Tax returns demonstrate how financially sound the business has been in the past and if they show that the business has done very well, lenders will be more likely to loan their money.

Credit Report

The business’s credit report will be one of the best documents to let the lender know how well the business repays its debts. A business with a high credit score has been in the habit of paying its debts on time, and it’s a great way to convince lenders that a business is also likely to pay them.

Finding a Lender

After business owners have prepared to answer the lenders initial questions, they will need to find the best lending establishment. Most likely, a business already has a relationship with a financial institution. These are the best places to begin to ask for a loan because these people are already familiar with the business and they already have a lot of the business owners’ personal and financial information. For example, a bank where the business owners have been paying their mortgages is an excellent first choice for a small business loan. Business owners’ will have a repayment history with the bank, and this will make it easier to qualify for a new loan.

Business owners can also look for lenders that are advertising good deals for business loans. Because they are actively searching for business, it may be easier for business owners to receive a loan from these types of lenders. Another choice is to go to a credit union that may have standards that are more relaxed than a larger lending institution.

Obtaining a Loan

After the business owners have found their lenders, they will be able to make their case as to why they deserve the lenders’ money. To make it easier for the lender to agree to the loan, these business owners can offer their business’s equipment, for example, as collateral for the loan. If they fail to repay the loan, the lender will take possession of the assets in order to sell them. Also, if the business owners are willing to put some of their own money into their expansion efforts, this will also help lenders be more comfortable loaning these people money.

By preparing before they ever walk into a lender’s office, potential borrowers improve their chances of obtaining the money they need for their businesses the first time. This eliminates the need to go from lender to lender, and they can begin expanding their businesses in a shorter period of time.