Ensuring your small business has enough money to sustain itself is one of the biggest struggles of business ownership. Whether you need money for infrastructure upgrades or you’re looking for capital to fund your startup, sourcing money in the early stages of business ownership can be a challenge.
We’ve helped small businesses prepare to secure their first loan, and we’ve learned a lot along the way. Where should you seek out your first loan? What kind of financial information should you be prepared to provide? How will you repay your loan? We’ll go through what you’ll need to prepare when meeting with potential lenders.
Have a Plan for Growth
While having more money is always nice, some business owners make the mistake of assuming that a loan will improve their current business plan. If you don’t have a clearly outlined plan for growth, nobody will give you money. Lenders want to see how you’ll use the funds to grow.
If you’re not sure where you’ll be investing the money, what your return will be or how you’ll repay the loan, consider designing a stronger growth plan before you even begin.
Know Your Ask
Whether you’re a financial person or not, you’ll need to understand your current financial statements when meeting with a lender. Maintain your bookkeeping to ensure your financial records are completely accurate and up to date. We recommend meeting with your bookkeeper, accountant or any financial advisors before you request your loan.
Know why you need the money, but also know how much you need. Asking for too much makes you look risky and out of touch with reality, but asking for too little is also a red flag too. Potential lenders will notice this, and dismiss your application.
Plan How You’ll Repay Your Loan
It’s important to have accurate financial data, not only to prove to a lender that you merit the loan, but to prove how you’ll be able to pay it back. You should take the time to work with your bookkeeper or accountant to understand how you’ll be able to repay the loan.
Don’t forget to pay careful attention to fees. You’ll have to account for interest rates and potential administrative costs when considering how you’ll repay. Unsecured loans have higher interest rates—lenders charge higher interest rates to compensate for this risk.
Find Your Ideal Lender
There are pros and cons associated with different types of small business loan. A loan from a banking institution is probably the first place you’ll think to start, because it’s a trusted establishment with whom you likely already have history. However, traditional bank lending is difficult for small business owners. Banks don’t have much of an appetite for lending to small businesses because of the lack of security on their investment.
You may have the option of putting up a personal asset, such as your home, as collateral. This creates potential risks for small business owners. Business owners often view their personal assets as their safety net and want to keep them out of the business.
It often makes sense to seek out other lending solutions, such as the Canadian-based financial services company Lendified. With fast, easy application processes and very transparent interest rate structures, Lendified makes it easy for small business owners to secure the capital they need to get their project moving. They’ll base their decision to approve your loan on your financial statements, but also on your growth story. Best of all, they’re fast. With approvals and loans granted within 48 hours, there’s no waiting around to see where you stand.
Approved? Congratulations! Be Responsible.
When you are approved for your first small business loan, the excitement is palpable. With an influx of money, it’s easy—and tempting—to spend money freely! We love working with Xero’s accounting software because it allows us to help clients track where their funds are going and stick to their initial financial plan.
Not Approved? No Worries! Be Persistent.
Not all lenders will be your perfect match, and not all small businesses will be approved for loans on their first time up to bat. Consider other opportunities for financial growth or tax incentives, such as grants, Scientific Research Experimental Development Tax Incentives (SRED) or Industrial Research Assistance Programs (IRAP). Most importantly, continue to work with your bookkeeping and accounting team to solidify your financial statements and improve your business plans. Growth takes time, hard work and persistence.
If you’re looking to prepare your financial statements to meet with financial lenders such as your bank or Lendified, Enkel can help you prepare. Contact our team to discuss how we can help you provide simple, accurate financial data to prepare you for securing your small business loan.