What You Need To Obtain A Small Business Loan
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People who come to me for assistance in starting their business and need a loan usually ask me what is needed for them to obtain a small business loan. It’s been a very common question. What you have to know is that all banks have their own requirements even though there are certain documents that are mandatory across lenders. I decided to write this post to give you an idea of the basic small business loan requirements that is common amongst lenders.
Many banks in our country have a loan application form that allow for small business loan applications. They require the would-be borrowers to visit their branches and fill out the loan applications.
My advise for you will be not to apply for loans in multiple institutions. This will have a negative effect on your business credit history. The more banks or lenders you apply from, the less chances you can get money. This is because they interpret it as a sign of desperation. Hence, it will put a question mark on your creditworthiness.
Lenders usually ask for a personal background information. This usually includes current and previous addresses, educational or professional level, criminal record and other information they deem necessary.
For you to secure a small business loan, you need a business plan. The business plan is a document that gives a detailed explanation of what your business is all about and where you plan to take it. A business plan must include the following:
Executive Summary: This is usually a one-page explanation of the business, goals, its operations, revenue model as well as marketing efforts. Note should be taken that this could be the only page a loan officer will actually read, so make sure you do it well and clear.
Business Description: Here you will state what the small business will do and how it will make profit.
Competition & Local Market: Give a description of where the business will be based and the target market. Make sure you pay a great detail to competition and how you plan to be different from them.
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Product or Service: Describe how your product or service works. Showcase what will make your small business attract customers.
Marketing, Sales & Promotion: Give an outline of how you will market your small business and create awareness. Describe the various marketing tools to be used including a website. Will you be using inbound (digital) or outbound (traditional) marketing? Will you attend trade shows or do sales promotions, etc.
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Management Team: Who are those to run the business? Describe their experience level(s).
Financial Data: Very necessary. You have to provide a cash flow projection, break-even analysis, profit-and-loss statements and a sample balance sheet.
Investment Information: This is very important also. Lenders will wish to know what the owners of the small business are putting in. If you are not willing to invest much of your own money into the business, investors will be a little reluctant about your project. You need to provide an estimate of sales, revenues and what the investor should be expecting as a return.
Appendices: This should include other things like research conducted, graphs, logos charts and other images.
Personal & Business Credit Report
Your lender will want to know your personal and business credit report as part of your small business loan application process. You should be ready to provide a credible credit report for yourself and your business. That’s in the case your business is already running. If you have a high credit score, you might be lucky to get a small business loan. If it is low, you may find it difficult securing finance from lenders.
You can increase your business credit score by clearing past-due debts or respecting payment of monthly debts in full and on time. This will take you to the right direction.
Most, if not all banks require their small business loan applicants to submit a personal or business income tax returns for at least three years. I know this would be difficult for startups but if you are a newly registered business, personal income tax return will carry a lot of weight.
This has already been mentioned above in the business plan. Banks or lenders are very much interested in the profit and loss statements, balance sheet and cash flow statements. Most lenders will ask for one year personal or business bank statements.
Some lenders ask for collateral, though not all. Loans that have a high degree of risk will require a substantial collateral.
Banks may require those applying for small business loans to submit other documents like articles of incorporation, business licenses, franchise agreements, contracts (copy) and others.
Anyhow, not all lenders or banks will demand all of the above. What you should note is that they have a similar lending criteria. Most big banks send away startups because of their inability to provide three years worth of financial information. In this case, it is better for them to turn to smaller financial institutions like credit unions. They understand well the local environment and are out to help local businesses to grow.
Get in touch with us for your business plan needs. We are located at Office Block, Hotel Le Nde – Akwa Douala. Email us @ email@example.com or call 237 699 421 947.