Before You Apply for a Loan
You've heard that the best way to finance your business is with
other people's money, so you're going to rush out to your neighborhood
bank and apply for a loan. Right? Or you've been turned down by
one bank, so you figure you'll apply for a bunch of loans at a bunch
of different banks all at once; the more you apply for, the better
chance that one will come through. Right?
Not so fast. Applying for a business loan has become much easier
in the last few years, and banks have gotten more comfortable with
small business lending, but there's still a good chance you'll get
turned down, and you need to consider the long lasting effect too
many loan and credit card requests may have on your credit record,
and the emotional toll it will take on your confidence.
Whenever a company checks on your credit, that inquiry is listed
on your credit record, even if they don't approve your application.
Having too many inquiries will make lenders nervous, and a history
of turn-downs can make it harder for you to get credit even years
in the future.
So take care. Before you apply for a loan, take the following
Do a little investigating.
Speak with the bank or lending institution and find out what kinds
of companies they lend to. Some banks shy away from certain industries,
or companies in trouble, or companies of less than a certain size.
If you don't fit the profile of companies they lend to, don't bother
wasting your time.
Check your credit history.
If you have a blemished credit record, try to clean it up before
you start applying for new credit. If you have a marginal credit
record, only apply for loans from lending institutions that accept
companies or people with marginal credit. Expect, however, to pay
much higher interest rates.
Get your business records in order.
Most lending institutions will want to see your books and tax returns.
Find a lending institution that regularly lends to small business.
Many banks don't know how to assess the viability of a small business
loan, so they tend to be more difficult to secure approvals from.
Do you fit the profile of a likely business loan candidate?
The kind of small businesses banks really like to lend to are: more
than two years old, profitable for at least the last two years,
good credit history. If you don't fit this profile, make doubly
certain whether the bank or lending institution you are applying
to will even consider your application.