Have you been contemplating the possibility of establishing your own business? Well, most businesses initially start off as an idea. But, with a little bit of action, that subsequently leads to the formulation of a business plan, then the acquisition of a business loan. However, before you can begin the process of securing a business loan, there are some things you need to be aware of, that will heighten the chances of you being approved.
1) Personal Background
One of the most important areas that lenders focus on is personal background. You will need to show your personal records to the lender. Some of these records include proof of related experience, credit history report, proof of education, tax returns, net worth statements and other financial statements. Additionally, if you have negative marks on your credit report, ensure that you clean them up, prior to applying for a loan. Most lenders use an individual’s personal background as an indicator of how reliable are and competent they will be once they establish their business.
2) Formulate An Official Business Plan
While it may be true that your personal background is a major determining factor as to whether or not you will be approved for a loan, your business plan is the most single important factor that lenders will utilize to determine your eligibility for a loan. This is due to the fact that lenders will use your business plan to determine if your business idea is actually feasible as far as profitability goes. An official business plan is essentially a document which outlines a business concept which helps to convince people of the value of your potential business. When it comes to formulating an official business plan, you will need to create five different sections that explain various aspects of your business.
Those five section should include:
* Section one – Executive summary.
* Section two – Mission statement (Business’s Goal).
* Section three – Detailed description of products and services.
* Section four and five – Financial information such as budget estimates, revenue forecasts and marketing strategies.
Additionally, it’s also worth noting that your business plan should include charts, figures and graphs which can help to illustrate complex points as well as financial claims.
3) Loan Amount
You need to decide how much money your business will need. Be careful enough that you do not underestimate the amount of money that your business may need, because that can lead to problems with a lack of working capital much sooner than planned. However, an overestimation can make lenders particularly suspicious and can lead to a loss of credibility. The key thing to remember is that you should have a well thought out budget that is backed by financial projections. This will demonstrate to the lender that proper research was conducted.
4) Repayment Schedule
Last but not least, you’ll need to provide the lender with an accurate schedule which details the exact dates of which you will begin to gradually pay back the loan and how you will pay it back as well. This is where your business plan comes in handy. In your business plan you should have created a cash-flow projection. Use your cash flow projections as well as your financial statement to validate your claims as far as the expected dates of repayment go.