How To Prepare For Discussions About Business Loans

Financing is an essential part of sustaining a business at any stage of its existence. Whenever you request business loans, though, you need to go into the process as prepared as possible. Business owners should prepare by addressing these four areas of potential concern. 

Loan Types  

There are numerous types of financing options and business loan programs. You want to pair your needs as closely as possible with the type of loan. There is a major difference in how you pay back the money on a merchant cash advance versus a commercial real estate loan. Also, some loans require collateral or some kind of security to address the lender's risk management needs. Many types of financing are supported by government-backed business loan programs, too, such as the SBA loan system.

How Much to Borrow

It is also prudent to have a hard number regarding how much to borrow. You don't want to commit to paying interest on more money than is necessary. At the same time, you don't want to commit to too small of a loan and end up needing to borrow again later.

Sometimes it's easy to arrive at a figure. If you're buying property or equipment for your business, the price of the financed assets will get you pretty close to the required loan amount. Conversely, you may need to do some math to figure out what you need in financing to cover your payroll obligations.

Check Your Credit Score

Contact the major credit bureaus and ask them to provide your company's credit score and the factors playing into it. You might discover something on your firm's credit record that has no business being there. Anything problematic could drag down your score and increase your interest rate. Make sure the bureaus have removed any offending issues from the company's credit record before you start asking about business loans. This will ensure that you're paying no more than is fair for your financing.

Establish a Business Plan

Lenders want to know where your business is headed. Develop and present a business plan that's coherent and achievable. You should be able to state how many employees you expect the business to have in five years, for example. It is also good if you can project what your expected revenues will be. The numbers don't have to be perfect, but you want the bank to know that you're serious about planning for the future.