Why do you need a business loan?

Before applying for a business loan, business owners must make an assessment of their needs before applying. Small businesses are prone to failure within the first 12 months of opening their doors. Due to the high failure rate, lenders have begun reducing the amount of business loans they offer. This is why you need to have a good reason why you need the loan along with a solid re-payment plan.

Normally the most common reason to obtain a business loan is to expand your business. You need new equipment or you would like to open new locations. Whatever the reason is, you need to demonstrate that your business is able to succeed with the potential to continue succeeding in the future.

When you are trying to expand your business, take a look at how much working capital you have available. You must have enough working capital to cover the expansion with enough left over for unexpected expenses. Several businesses actually choose to obtain a loan even if they do have enough working capital because the working capital can be used to cover the business costs during the expansion and the loan amount is entirely used for the expansion.

Here are some tips that may help you obtain the business loan:

• Demonstrate an understanding of your industry and have a plan on how you will find your customers and become successful. Most lenders deal with people that have not done their research about their industry. The more you know, the higher your chances of being approved will be. This shows the lender you are truly committed to your new business and that you have the ability become successful.


• Provide the bank with strong collateral. Having a nice piece of property to front as collateral will reduce any hesitation the lender may have about funding you such a large loan.


• Prior success in starting and running your own business will prove to lenders that you understand how to run a business and how to make it successful. It is even better to have success running a business in the same industry.


• Offer a down payment to prove to the lender that you are committed to the business. When they see that you are willing to invest a lump sum of your own money, you may be able to avoid using your home as collateral to front the loan.


• Have a co-signer with good credit and access to valuable property. A co-signer will significantly improve your chances of getting the loan because it lets the bank know they will receive their money from another person if you default on the loan.


• When you go in for the interview, make sure you can provide relevant data about your industry and that you are committed to make your company a success. Providing all the data will help, but it also helps to have an outgoing personality and to be dedicated to your new business.

The loan approval process may take anywhere from a day to a month. It will be based upon the type of business loan you are applying for along with all the information you provided. If your application is flagged for risk factors, it may take even longer before you receive the money. This is because your application will go through another approval process and the lender may call you to ask for more information. Try to have your last 3 years of financial records at hand so you can quickly get them over to the lender if they need them. You may also need to provide them with your tax information for the past 3 years as well.