Are you planning to start your own business? A sneak peek on the loan application process

This is a guest post by Sophia Kinsella. Sophia is a financial writer and offers her advice to many people suffering with business related problem. She contributes articles to many sites and guides people through different forums.

The potential entrepreneurs who’re planning to start their own business often look for fund to start their own work. Well, the novice entrepreneurs are required to understand the process to obtain the fund to start their own business. Therefore, they need to be aware of the requirement criteria of the lender to get the loan to start their own business.

Here are some of the effective points that you need to consider when you plan to start your own business:

  1. Tips to obtain fund for your startup business:
    • Design your business plan- Before you apply for fund, make sure you’ve a proper business plan. You can consult the internet or book to write your own business plan. If your business plan is worthy enough to be funded, then the lender may provide you with the business loan.
    • Calculate the required amount: You need to calculate the fund required to start your own business operation. If you estimate the total amount needed for your business, then you can avoid taking out loan more than required. As a result, you can pay back the loan on time without defaulting on your payment.
    • Type of funding you wish to apply for: If you’ve excellent credit report, then you can start applying for a loan from the bank. You can get the loan on favorable terms because of your good credit history. The other funding options are:
      • Commercial financing: This loan is provided to the customers with financial need for a new business like working capital, inventory purchases, account receivables and payroll. However, collateral is required to apply for a commercial financing program.
      • Small Business Association Loan: The SBA backed lenders help people to provide loan for small business organizations.
    • Look for investors: Try to find investors to set up your business if you’re unable to get a business loan. You can approach your friends or family members to invest in your business.
  2. Requirements for applying for a business loan: The loan underwriting requirement may vary from lenders to lenders. However, the general guideline is somewhat similar for all the financial institutions.
    • Business owner information: The business owner is required to provide information when the entity applies for the loan. The lenders require the owners to meet the minimum credit score standard. However, the minimum credit score standard varies from bank to bank. The owners are required to provide the bank with his name, address, and Social Security number along with his date of birth.
    • Credit Application: A new business organization is required to apply for a trade credit when they first create its own bank account. But the eligibility criteria for credit application may vary from company to company.
    • Business reference: You can start business operation with companies who’re interested to provide trade credit. If you make your payments on time to the vendors, then ask them whether they mind to serve as a business reference for future supplier accounts.
  3. List of items you need to check while buying an existing business: If you’re planning to buy an existing business instead of setting up on your own, then you need to the following points in mind.
    • Check the financial documents: Before you buy the existing business, make sure you check the financial documents of last three years. These financial documents are inclusive of the bank statements, cash flow record, audit reports and balance sheet along with income reports. Make sure you find out more information on the credit obligations, loans, any purchase agreements, mortgages or liens before owning the business.
    • Review the month operating cost: You need to check the lease documents to find out whether they can be transferred at the present rate. Make sure you’re aware of the budget as well as the company expenses.
    • Evaluate the tax record: Make sure you check the tax record of last five years. If you analyze the state tax record, then you can get an idea of the business’s profits and losses. You can easily evaluate the growth of the existing company that you plan to buy. Therefore, it can help you make a wise decision.

Therefore, you need to keep the above mentioned points in mind when you plan to start your own business.

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