3 Important Facts About Getting a First-Time Business Loan

You may have a great idea for a new business that will be a huge success, but getting a first time business loan is no small feat. The start up costs of a business are a huge obstacle for entrepreneurs with little cash. You must be prepared to demonstrate to a lender that you are credit worthy and prepared to run a successful business. There are also a few more things you should know about getting these loans.

1- Your Personal Credit History

If this is your first business, then you don't have any established business credit. So lenders are going to base your credit worthiness on your personal credit history. If your score is great and you pay on time every time, then you are one step ahead. If not, then you need to make some improvements before applying for a loan. If your credit history is minimal, you may want to establish some new credit. Try obtaining a new credit card or even a secured card. Don't charge more than thirty percent of the limit and pay on time every month. After six months you will have raised your score and shown additional payment history.

If you already have established credit, but your score is low, you need to find out why. Perhaps your balances are too high. You should not carry a balance over thirty percent of your limit. You never want to go over your limit either. Paying down these cards will dramatically increase your score. If you have late payments then perhaps you would benefit from automated drafts. Let your bank pay your bills automatically through your checking account. You will not incur late fess and your credit score will improve. Once these steps are implemented, allow six months for the credit bureaus to reflect your changes and show a pattern of responsible borrowing.

2- Know your Field

You shouldn't try to start a business in a field you know nothing about. A lender will not extend a loan to you since it would be risky. You need to be passionate about your venture and be an expert on the topic. Take classes to strengthen your skills. Get a partner who is knowledgeable in the field. Show a lender that you know what you are talking about.

3- The Business Plan

The most important step in applying for a small business loan is creating a good business plan. A business plan must be well thought out and well presented. Your plan should convince a lender that you are a low risk. You need to research how feasible your business can be. Your business plan must explain how much money you will need, how you will spend the money and how you plan to repay. Also, you will need to provide your business financial statements and corporate documents, if applicable. The main thing is to convey your mission statement properly and provide the lender with the supporting documentation to see that you are committed to your business.