By Leslie Youngblood
As your business grows, you might find that you could use a loan to take advantage of new opportunities. Often times you can turn to a loan to finance necessities such as equipment, inventory and property leases.
Unfortunately, the world of small business loans can be a complicated one to navigate, and it's a task that always seems overwhelming at the outset. That's why I put together a quick list of the best dos and don'ts for getting a loan for your small business.
DO: Get a separate bank account
A recent survey found that 70% of small business owners without a business checking account were turned down for a business loan in the past two years.
It's kind of a "no duh!" thing, but any lender who is going to give your business a loan needs to first get a grip on your finances. The easiest way to do that is to have a separate account and books for your business.
DO: Look into your options
There’s no shortage of lenders out there, so make sure you take some time to shop around and check out all of your options. Often times what happens is that borrowers will end up with the option that's best sold to them rather than what's actually best for them. Being willing to invest a little bit of time to examine the different loan options will give you a better fit and better loan in the long run.
DO: Learn from your mistakes
45% of small business owners who are denied financing get turned down more than once. Most of the time they have no idea why their applications were denied.
So if you are faced with a no, see if you can get any input from the lender about how you can improve going forward, or have another professional look over your application to give you some suggestions. Seeking expert advice at any time is a great idea in general. There are no rules that say you have to apply for a loan completely on your own.
DON'T: Be delinquent on payments
Late payments can lead to other red flags that will drive away lenders— Yikes! And paying late doesn’t just hurt your credit score, it can also potentially lead to tax and property liens that can greatly harm your chances of getting approved for another loan at a later date.
If you do have credit problems, seek out a lender that offers flexible terms and rates based on your business’s performance, and not solely on personal credit history.
DON'T: Only apply at the local bank
Lots of business owners have this dream that when they go to get a loan they'll just waltz into their local bank and get the money they need with a great interest rate and great repayment terms.
If it's your lucky day, sure, that may work. In most other cases though, local banks might not be so interested in lending out $50,000 or whatever amount you need.
A lot of entrepreneurs don’t realize just how many different types of lenders are out there and how many different types of lending there are. So go ahead and look into your local bank, but also find a few other lenders too.
DON'T: Be vague about what you want
Within your credit application, lenders will ask how much money you want and what you plan on using it for. Be open and as complete as can be with your answers! If you're vague about these aspects, it could give the lender a lack of confidence in you and your ability to pay the loan back.
This is the most common pitfall for why businesses get denied. So many don’t have a well thought-out idea of what the funds will be used for, or how much funding they actually need.
Your best bet is to create a specific plan before you meet with any lender. Having all your details figured out and explained in full will increase your chances of approval.
And that sums up my best do's and dont's for small business lending. While financing and loans aren't the most glamorous parts of being an entrepreneur or owner, it's an essential aspect of any small business journey. Now, you'll know how to rock it.
Leslie Youngblood is the Creative Director for Excelerate America, the ultimate resource for entrepreneurs. She'd love to hear about your experiences with small business lending. You can email her anytime at firstname.lastname@example.org.