Small businesses can usually hum along without borrowing money... until a certain point. When the business is turning a profit, has a positive cash flow, and is forecasting positive numbers for the future, it might be time to consider a loan.
A business loan can be used to expand operations or purchase real estate to accommodate the growth. If the business needs to buy or lease equipment and has done a cost-benefit analysis. Then a business loan might be a logical step. The cost-benefit analysis is important because it offers potential tax write-offs and depreciation.
Purchasing inventory may be another reason to consider a small business loan. Particularly if your business is seasonal and you need to purchase a large amount of product to have on hand through the anticipated selling season. Or, if when starting out, you aren't quite earning enough to make ends meet and cover your day to day operations, a business loan may be what you need.
How to Qualify
Know how much you need to borrow and what the loan will cover. This may seem like a no-brainer, but if you are just starting your business these questions are not always so easy. If you are new to your business, make sure you have it figured out before you apply. Take some time and think about why you need that loan, having some well thought out statements will come in handy when it comes to qualifying for your loan.
Another important thing to have prepared is a financial statement. You should already have one of these as part of your business plan, but if you don't get started right away. Having one will answer the most important questions a lender might ask. Be prepared and have your financial statement finished and finalized beforehand. The Balance Small Business helps will give you helpful information on the different parts of a financial statement.
Businesses that have been around longer than three years have their own established business credit history. But, if your business is a startup or under three years old then your personal credit will come into play. So, this means that you should request a credit report from all three credit agencies. If there are any errors work on getting them fixed before you go in and apply for your small business loan.
Documents and Paperwork
Gathering your documents and organizing other paperwork is like dealing with your credit history; no fun, but necessary. Whether you are using a traditional source like a credit union, or you a newer source like an online lender for your loan the needed documents will be very similar. Nerdwallet has a list of the necessary documents that you will need when applying for your small business loan.
No matter what lender you use, you will need a business plan. Yes, there is the loan application but the plan is separate. There are several parts to a business plan. Entrepreneur Magazine has a great article that will help you understand the different parts of a traditional business plan.
If you are looking for more resources on business plans, Forbes has an article that covers presenting your business plan and other topics to consider when building the plan. The Art of Startup Fundraising is another great resource that asks important questions and has a streamlined approach to building a business plan. Finally, Rule Book of Business Plans for Startups is a video series with corresponding PDF files that highlight specific steps for making your business plan with examples.
So you've put together your credit history, paperwork, and business plan. After all that hard work, you are getting close to that loan. But now you need to decide, what type of loan do you want? Some of your choices are a small business line of credit, an equipment loan, and even a small business credit card. This Forbes article reviews types of small business loans.
Support for Your Success
Even with a good idea, a plan to move forward, and the loan to help you grow, small businesses can encounter many hiccups. Support is out there. SCORE is a non-profit organization of small business owners that volunteer to mentor new business owners. Mentoring can be done in person, through e-mail, or through video. Montana has several chapters with volunteers located in Helena, Bozeman, and Butte. Learn more about SCORE by visiting the website.
The Small Business Development Center (SBDC) is another resource for support. They offer training, workshops, and other business planning, as well as help with the loan process. There are ten centers throughout Montana, so you are sure to find help if you decide you need it. Check out their resources, and decide if they can help you.
Help is out there for those traveling the path of small business ownership. Rocky Mountain Credit Union has a team to help with your loan process that is interested in the success and growth of your business.
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