4 Components to Have in Place Before Securing a Business Loan

Starting a business today isn't too difficult. However, it can be easy to experience hiccups when you're first trying to get off the ground if you're not properly prepared. This is especially true when it comes to funding your business. If you try to reach out to lenders without being prepared, you'll likely be turned down. Thankfully, it’s not hard to find the items you need for a business loan, especially if you keep organized records. To avoid any unexpected delays in launching your business, here are four components to have in place before securing a business loan.

1. A Business Bank Account (Potentially Other Financial Statements)

You need a business bank account for your lender to deposit funds into. Not having a separate business bank account may prevent you from securing funding. If you have been operating your business and you're asking for funding now that it's starting to show signs of activity, bring financial statements and records so that you can prove your business is bringing in money. This can help your application tremendously.

2. A Strong Personal Credit Score

Your personal credit score will play a major role in acquiring funding until you have established business credit scores. The higher your personal credit score is, the better your chances of getting a loan with more desirable terms. Take care to boost your personal credit score if it's not as high as business lenders would like it to be. There are multiple loan options from a wide range of business lenders, so the desired score will vary depending on where you go for funding.

3. Articles of Incorporation, Permits, and Similar Documentation

Business documentation will be requested by any lender you go to. What do you need to have with you when you apply for a loan? You should have articles of incorporation, proof of business ownership, any permits that are required in the state or at the federal level, and other documentation that pertains to your business. This proves to them that you are the business owner, that you're operating legally, and that they can verify your business.

4. Business Plan and Projections

You can secure a business loan without a business plan. However, you generally won't be able to if you plan on approaching more traditional lenders. Traditional lenders will often ask for a business plan to see that you have a viable business idea and that you will be able to translate your idea into a profitable business. If you don't have anything except for the name, they're obviously going to turn you down for a loan.

It's also crucial that you have business financial projections with you. Seeing just how much you can make will demonstrate that you have a financial plan and, very likely, the capability to pay back your loan. Banks are businesses too, and they want to know that your business is a smart investment for them. Just remember that you'll still need to sign a personal guarantee or have collateral.

Applying for funding is a rather complex process that requires a lot on your end. Make sure you're prepared by gathering some of the most essential components outlined in this guide.