3 Tips before You Apply for a Small Business Loan

Before you apply for a small business loan, there are a few key things you need to do in order to get ready. Here are some tips to consider before you apply for a small business loan to get the money you need for your business. 

Advice Before Applying for a Small Business Loan

When you are a sole proprietor, you and your business are one. You will essentially take personal loans. If the "business" defaults, you default. The bank will hole you responsible if the particular loan is referred to as a "business" loan. You can create a separate entity for your business to protect your personal finances.

A corporation, LLC, S-Corp or a C-corp are all types of corporate organization that are separate entities. If your corporation borrows money, then only that corporation is responsible for paying it back. If the corporation defaults, the business might go bankrupt, but your assets are separate from your credit score. Of course, this means the corporation would have to qualify for the loan itself, which can be hard if it doesn't have a business credit score. 

Prepare a Detailed Business Plan

When you want to apply for a small business loan, you will need to convince a lender that the business is a good idea. This is especially true if it is the business itself trying to borrow money. In order to convince a lender to lend you money, you need to show what your business can do. This is where a business plan comes in. A business plan needs to clearly outline exactly how you intend to create a successful business that will generate the income to pay back the loan you are taking out. 

The plan you create should be as specific and detailed as possible. You can do things like identify your target market, create cost and profit projections, and explain your marketing, or ad campaign. The more detail you have and the more you can make a lender believe you really do have a plan that will work, the more likely it is that you will be met with success when you apply for a small business loan. 

Look Into All Different Lenders

Don't assume you can only go to your regular bank. Banks, credit unions and other lending institutions may all offer small business loans, and some may be more open to taking a chance on lending to a newer business than others will. You should also consider speaking with your local Small Business Administration (SBA). They may be able to point you towards those who provide special financing to help newer businesses. When you apply for a small business loan, doing research and understanding exactly what you are getting into is key to getting a loan you can live with.