5 Things to Keep in Mind When Applying for a Business Loan
At the Iowa Center for Economic Success (formerly ISED Ventures), we work daily helping small businesses and aspiring entrepreneurs. Obtaining funds is an important milestone in a business’s development. The process can often be intimidating. Here are 5 steps to keep in mind when thinking about business capital.
1-Plan for growth. Having a strategic plan that includes how much capital you will require and where you will obtain it helps you prepare yourself and your business for the loan application process.
2- Develop relationships. Open your business checking and savings account at the bank you intend to use as a lender. Introduce yourself to your business banker beforeyou apply for a loan. This gives you a chance to determine whether that bank is the right fit for you and helps the banker understand your business outside the lending relationship.
3-Understand your credit history and address any issues at least 6 months before applying for financing. Credit reports indicate three things: whether you have legal obligations that may put your business at risk (such as judgments or tax liens), how responsible and experienced you are in managing debt, and whether you are in a difficult cash flow situation. Before you apply for financing, be sure to review your business’s Dunn and Bradstreet report (if there is one) and your personal credit history. If your credit history is damaged, you can repair it. Correct any items you feel are inaccurate. Pay off small collections. Commit to making timely payments and keeping credit card balances at 50% (or less) of your credit limit. These strategies will improve your report and your score, often in as little as six months.
4-Put it in writing. Your lender will need to review your business plan and financials. Be sure to keep good financial records, file taxes accurately, and have a concise, well-written business plan.
5-Get help evaluating your business plan, credit reports & financials before you apply. All writers need editors. There are many free resources in Iowa that can help you polish your application. In addition, a conversation with your business banker may help you determine whether your business is ready for a bank loan or whether you should try another avenue first.
6-Bonus! Your lender is not passing judgment on you personally—or even on your business. Banks in particular are limited in the risks that they can take on. Brand new businesses or businesses with few physical assets may have a hard time fitting into a bank’s risk profile. Consider alternate sources of capital, such as crowd-funding, microloans, and equipment financing.
The Iowa Center for Economic Success is an Iowa economic development organization that helps Iowans prepare for success in business ownership. It offers business education and one-on-one counseling at its Clive, IA office and across the state. It also offers microloans to businesses owned and operated by women, minorities and individuals with disabilities. You can request support for your small business by visiting theiowacenter.org or by calling 515.283.0940.
Amelia Lobo is Director of Small Business Programs at the Iowa Center for Economic Success