When you own a small business and start investigating loans or lines of credit to help with expansion or growth, there are some best practices to follow that can convince lenders you’re a secure investment. Even if you’re not currently exploring loan options, you should prepare your financials around certain guidelines so you’re ready to communicate to banks and other investors. Here are four strategies to assist your funding efforts:
1. Choose the right lender
There are many different loans for which you can apply. The U.S Small Business Administration routinely provides loans for startup entrepreneurs or continued operational success. Banking institutions both local and national are options, although the SBA recommends community banks for smaller loans.
Inc. magazine suggested asset-based lending may be the best avenue for small businesses with short-term goals and successful operations. Companies can invite lenders to audit existing assets, accounts receivable and inventory as well as extend an appropriate line of credit.
2. Ask questions before application
Each financial institution has its own vetting process for loan applicants. Questions and requests for paperwork can’t surprise you. When you select a lender, you should do your research and learn exactly what the institution or individual will look for.
“Each financial institution has its own vetting process for loan applicants.”
This is another reason community financial institutions may be your best choice. It’s great if you can build off an existing relationship. You can find most information you need about different forms of loan applications online or through industry educational materials, but its better if you can speak with a loan officer beforehand and let the lender help you prepare for the interview.
3. Make financials easy to read and communicate
As a small-business owner, you should already have your financials in order for the sake of your daily operations. Now it’s time to turn your cash flow, investments and accounts into easy-to-read demonstrations of your success and responsibility. A data solution like financial software for security companies is a great system for charting, comparing and communicating monetary transactions.
Business News Daily warned small-business owners most lenders will also want to see personal financial histories. Any indication you can provide of good credit is in your best interest. If you start a business with personal loans from friends or family, keep detailed records of the particulars. All responsible activities work in your favor if you can prove they transpired.
4. Have specific plans for funds
Your records should show your business’s successful history and good choices, and you should also use hard data and specific details to create projections for company growth. Lenders will want to know exactly what you plan to do with their money and how you expect to pay it back.
It’s best if you answer application questions before the interviewer has time to ask them. You can build projections off of current security business software numbers. If your cash flow records demonstrate a consistent stream of revenue, you can use the data to create a payment schedule on your terms. Ideas for growth seem less risky when you can show the lender how similar ideas and practices profited your business in the past.