As a new startup, finding funding to get your business off the ground isn’t easy. Rallying support from investors who are willing to take a chance on your idea can be downright overwhelming, especially when you know you have a great idea.
But when it comes to self-employed loans, budding entrepreneurs do have options. However, you also need to have a solid business plan and know and where to apply.
Here’s what you need to know about taking out an online loan for your business.
Write a Business Plan
Your business plan is the first thing a potential lender will look at. They want to know about your goals, both short and long term. They will also want to see a sound strategy as to how you plan to help your business grow. They want to see that you have a clear understanding of what’s needed to get your business off the ground, and that includes marketing, funding and what you’ll do if the business doesn’t take off immediately.
Most small businesses, or even ones that are just taking shape, usually don’t have a lot of insight when it comes to self-employed loans. For this reason alone, it’s important you do the research and compare a variety of lenders. All lenders are not created equal and accepting a loan from the wrong can be costly.
Know Your Expenses
If there’s one surefire way for a business to go under before they even get started, it’s underestimating their expenses. When it comes to getting an online loan, you need to be 100 percent certain of how much you are going to need. You need to make a list of all possible expenses and increase them by 25 to 50 percent.
Be Honest About Your Income
Overestimating your earnings potentially is just as disastrous as underestimating your expenses. Since lack of cash flow is what causes more than 80 percent of new businesses to go under, it’s imperative that you go over your budget, determine the amount of profit you expect and then reduce it by half. You can do this by running an audit.
Even if you’re just starting out, you need to take a long, hard look at your cash, credit history, and collateral. These three factors play a huge role in the approval process. For instance, if your credit is less than ideal, you need to find out why and find ways to increase your credit score. Since most new companies usually don’t have a surplus of money, your credit score can be a determining factor.
Prepare Documents in Advance
In addition to calculating your potential ROI and monthly expenses, you also need to have your paperwork in order. While the application requirements vary between lenders, in general, you’ll need a copy of your business plan, current financial statements and a breakdown of your projected cash flow. Be sure to include as much concise information as you can in your loan application. Lenders want to know your business goals, your own financial picture and where you see your business in the long run.
Just like any commercial in-person loan, getting a small business loan online is a process. And being rejected by one lender doesn’t mean you’ll be rejected by the next. The best thing you can do to up the chances of approval is to be prepared. As with any type of loan, lenders want to see all of the information laid out in a clear and concise manner. If your application is too vague, the risk of being rejected is significantly higher.