Several businesses get financed by banks and alternate money lenders. Here, the business owner does not have to relinquish the ownership of his or her company to get the funds needed for their venture. Small business owners can apply for bank loans if they want to fund their business units for expansion and growth. Here, they need to have a good personal credit score to get the loan. Besides a good credit score, they should have a solid business plan that tells the bank the roadmap of their business and how it can generate good profits today and in the long run.
The importance of business plans for the approval of your loans
If you are looking for small business loans from banks, you must have a business plan in place. The bank needs to understand the prospects of your business and its future growth. There are alternate money lenders in the market that will also ask for your business plan if you are seeking a higher amount of loan for the extension or the expansion of your business. Both money lenders will look for your emergency or contingency plan for your business unit.
What should your business plan contain?
If you are creating a business plan for a loan application and approval, ensure it contains the following –
- Cash flow- You need to project to the money lender that your business has a smooth and well-documented cash flow. It indicates that you have sufficient ability to pay back the principal amount and the interest charged on loan. Here, you must ensure you have legal and financial statements up-to-date. Most banks and some alternate money lenders might ask for these documents. They will check balance sheets and other income states for the last three years or more. You should also file your tax returns for the same period as well.
- Collateral- In conventional loans like that in banks, you must mention the collateral you wish to provide against the loan. In fact, few banks will give you a loan without a guarantee. This collateral might be anything from equipment, machinery, inventory or your home equity. In case something goes wrong, banks will generally seize the collateral you have placed against the loan. That will help them get the money you owe against the loan taken. Details of the collateral should have a mention in the loan application along with the business plan. You may wonder why banks ask for collaterals. Banks generally seek collaterals so that they face no risks when it comes to lending business loans.
- Co-signers- Banks often ask for co-signers to get added protection. You should ensure that your co-signer for the loan application has good creditworthiness. Alternate money lenders generally do not look for co-signers. They do not have a stringent process for co-signers. Some money lenders also provide loans to small business owners with poor or bad credit. However, they will ask you why you want to take the loan for your business. You must have a good reason for them to approve the loan.
- Disclose your marketing plans- Today, banks look at your business marketing plans. There are strong competitors in the market and other price wars that dominate your success in the market. The customers are fickle, and they change sides quickly. That is why conventional banks look and examine marketing plans before they give you the loan you need for your business. That is why in your business plan, think about the possible risks you face in your business and the ways you can address them in the market. Alternate money lenders might not give too much of stress on your marketing plans as some of them are focused on providing loans to small business units. They will be more focused on whether you will be able to repay the loan taken. Experts in the field of small business lending and loans, state you must have a good marketing plan in place when you are making a loan application for your business.
- Management-Banks often have internal and external policies that determine whether your loan will be approved or not. They look at the credentials of the borrower and whether they can pay back the loan or not. These are some of the top concerns that bankers have when it comes to repayment of loans. The track records of the borrower and their ability to manage finances are significant concerns of bankers for evaluating the loan application of business owners.
When you are looking for financing options for your business, you will find banks look for business units that have adequate cash flow. If you are looking for funds for your startup business, you should not turn to banks. You should approach alternate money lenders who generally fund business for a concept. These money lenders do not have stringent rules when it comes to financing your business. When it comes to banks, they look for financial security and your ability to repay the loan. For money lenders, they often ask you to pay a service fee in addition to the loan with its applicable rates of interest.
Just applying for a loan is not enough. You must be aware of what you want to do with the loan. That is why be clear with your objectives. Ensure the banks are aware of why you need the loan for and how it can help you and your business. At the same time, you must create a good business plan to help you with the loan approval. A good business plan will convince the lender you are taking the loan for a reason.
Last but not the least when you are approaching private lenders for a small business loan, ensure you understand the terms and conditions of the loan entirely. It helps you in a substantial way to choose the right lender and get the correct business loan you need for your business with success!
Amy Walsh is an experienced and skilled business consultant and Financial advisor. She helps clients both personal and professional in long-term wealth building plans. During her spare time, she loves to write on Business, Finance, Marketing, Social Media. she loves to share his knowledge and Experts tips with her readers.