Applying for a Small Business Loan? Here are 5 insider tips.
By the KLCFDC team
The KLCFDC team understands that the right loan at the right time can have a big impact on your business. The business loan compliments other sources of capital like owner savings and investment.
Loans can help you:
get the business started,
expand a bursting warehouse,
improve productivity with new equipment,
develop or commercialize a new and innovative process or product,
manage planned or seasonal cash flow cycles and gaps.
Applying for a loan though, can sometimes seem daunting.
Here are 5 tips to demystify the process and increase your application’s odds of success:
1. Be Prepared
Before applying for a loan, consider possible questions or loose ends that might slow down or de-rail the review. For example, all lenders will look at credit history. Past, responsible use of credit helps predict future repayment. Check your own credit score using a service like Equifax. Some banks offer this service through online banking. Ensure your credit reports are accurate. If there are any discrepancies, address them promptly. If you have credit with suppliers, make sure your accounts are current as lenders may check with them. Resolving loose ends and outstanding balances could improve your credit score, approval chances and even interest rate. Ensure your current suppliers are up-to-date as lenders may require a reference check.
2. Give Yourself Enough Time
Don't wait until the very last minute to start the application process, especially if you have deadlines. Rushing through the loan application process can also lead to mistakes and revisions. Adequate preparation signals to lenders that you are serious and organized. The duration of the review will be impacted by the applicant, risks, purpose, and the dollars requested. Typically, it takes approximately 30-45 days from first contact to transfer of funds. Regardless of the size, there will be multiple phases – application completion, review by staff, approval by the KLCFDC Board, meeting conditions and depending on the amount, closing through a lawyer’s office.
3. Have a Clear Purpose
Whether you plan to use the funds to expand your operations, purchase new equipment, or launch a new product line, you need to clearly articulate the loan’s purpose and impact. Explain how the loan will contribute to your company's growth, grow your workforce, or manage a risk. Under normal circumstances, a business loan is not the right solution to patch a poorly performing business model, fix cash flow issues or service existing debt. In an ideal situation, the business loan builds on previous success and traction, the economic returns exceed the costs, and the new loan can be serviced by revenues generated by the expansion.
4. Know Your Numbers
We love numbers. Financial information tells the story of your business better than any written text. Credible financials create confidence in your plan and your management skills. For existing businesses, you should provide 2 years of past financial statements (Profit and Loss, Balance Sheet) and your interim, Year to Date numbers including Accounts Receivable and Payable. For new businesses, information like cash flow projections, pricing models, personal budgets and letters of intent can help demonstrate viability. If you are an existing business that is expanding or diversifying, focus on what will change.
5. Show Your Work
“Do I need a Business Plan?” is our most frequently asked question. The answer? It depends. We need to see evidence of business planning. What work have you done to test assumptions that the business can make a profit, customers want it, you have the operational skills, and the idea is durable? What market research has been conducted? We recommend the Business Model Canvas as a simple, straightforward tool to present the elements of your business. If the loan partially funds marketing activities, provide a Marketing Plan that outlines the target, goals strategies, tactics, and budget.
By following these five tips, you will be better equipped to navigate the loan application process with KLCFDC (or any lender). A well-crafted application impacts your odds of success and speed of approval.
If you have any questions or need assistance preparing your loan application, don't hesitate to reach out to our team. Visit us at the Launch Kawartha Innovation and Entrepreneurship Centre or call 705 328 0261.