Many people attempt to get a loan without getting any idea if they even qualify for a loan – meaning they don’t know their FICO score, they don’t have a profit and loss statement or a business plan to open up a small business. They may just say “I need this much money”, without actually presenting to the bank why they need that amount, what amount of income they are going to have to be able to pay back the loan, etc. So, for most people, the biggest mistake they make is that they are ill-prepared to apply for a loan because they don’t even know what it means. People set themselves up for failure or rejection before they even walk in the door.
Here are the top 3 tips on how to prepare to apply for a business loan:
1. Know Your Situation
Even before you decide how much money you want, first decide what your expenses are going to be and where you are going to open your business. How much is it going to cost you to buy the equipment, pay for help, pay for health insurance if you have to, etc.. What are the absolute costs of running this? How much are you going to put into this yourself? Where is your money going to come from?
Know your FICO score. If it is not 720 or above, don’t even bother applying for a loan.
If you are below. it may take a few months to a few years to bring the FICO score up. There is no way to do it fast. Just continue to pay your bills on time and continue to pay off your debts. Do not use credit cards for at least 2 months before applying for a FICO score, and then you will get a true picture of your score.
2. Hope For the Best, Plan For the Worst
You have to plan for the possibilities, and present an accurate picture with the worst-case scenario of what it is going to cost to run this business and how you plan to pay the loan back. For a restaurant, you need to have a working capital for at least a year and need to be prepared to work 20 hours a day 7 days a week.
3. Don’t Forget To Pay Yourself.
Don’t count yourself out of the equation. Above all, when you apply for a loan, act like a business person. Walk into that bank, as if you are already a business owner, with your own personal finances, past-year tax-returns and business plan in hand. Arrive with everything you would expect the bank to want to see. Show them what you will use as security on the loan as well.