As populations and the need for more resources grow, the creation of new businesses is necessary to maintain the health of an economy. The problem is, not everyone with the best ideas has the most capital. Sometimes the most talent and the best ideas are given to those with the least resources. That’s where business financing comes in. Unfortunately, the acquisition of a loan for business startup purposes can often times be more complex than inventing or building an actual business. Due to the risky nature of lending, financial services providers have to apply a long and sometimes grueling vetting process to make sure the people they lend to are worth the risk.
If you’re in the market for a business startup loan, you will need to know how to position your business plan as well as yourself to optimize your chance of being approved for a loan. Your goal is to minimize the time it takes to acquire a good loan- and to get the financing you need on the best possible terms.
Here, we’ll walk you through the process, explaining each point. By the time you’re done, you should be ready to begin searching for your business startup loan and be on your way to financial success.
Obtaining a Business Acquisition Loan
Know What Lenders are Looking For
Getting approved for a loan is a bit like applying for a high-level job. It’s much easier to get one if you’ve already got one. That can seem pretty discouraging. But you should keep in mind that if you haven’t been given loans in the past, and made good on them, you’re going to have to put in some extra effort into meeting the business acquisition loan requirements.
The first thing your prospective lender will hope to see is that you have experience in the industry you are going into. Of course, this isn’t necessarily a deal breaker. Just know, if you’re going in without experience, you’re handicapped.
If this is the case, you may want to seek out a mentor, perform market research, and study the industry you’re entering. If you’ve got an impressive and relevant degree you can show off, or a relationship with someone influential in that field- it will help a lot.
Your Business Plan
Lenders will then want to see that you have developed a realistic business plan. They will also want to see that you have a viable plan for creating your new business. There are plenty of great business plans you can make reference to. But they want to see that you can actually make the one you choose into a reality. Ideally, your business plan should read like a mathematical equation that equals profit. The closer you can get to that ideal, the better your chances will be.
Here, your goal is to demonstrate that you have the resources to make good on your loan. Your lender will want to see reserves, assets, and collateral sufficient to stay in business when the inevitable challenges of the market present themselves. This part of the approval process has three parts;
- New Business Owners: New business owners will be evaluated according to their credit score. The best advise we could give to inexperienced business loan applicants is to spend some time beforehand cleaning up your credit score.
- Experienced Business Owners: Experienced business owners aren’t going to get a break, but they will have more to lean on when it comes to surviving the vetting process. You will be expected to show a history of successful, lucrative business practice. Your business will have its credit score scrutinized. Further, you should be able to show how your current business will be an asset to your new venture- and not a liability.
- Your Target Business: Finally, the lender will want to see that you aren’t asking for more than you need to start your new business. If you are asking for too much, it shines a dim light on your financial acumen and your understanding of the industry you’re going into.
Your Industry & Business Type
Banks have long understood the fact that some industries and certain types of businesses are more or less risky than others. Law practices and health care providers are looked on as good risks. Restaurants and vice industries, as examples, are harder to justify. Look into the risk profile of the industry you’re going into. If it is one with a risky nature, be prepared to go to extra effort to prove why you’re worth the risk.
Where to Find the Best Business Acquisition Loans
Of all lenders, banks have the strictest application procedures. They want you and your existing business to have good credit with no red flags like bankruptcies. If you have a squeaky clean credit history, good business experience, and valuable collateral- a bank loan might be your best bet. That’s because while they are very strict- they also offer the best terms to those they provide loans to.
If you have some dings on your credit history or no experience, you might have better luck with an SBA loan. These are loans which are guaranteed by the Small Business Administration and are funded by the American taxpayer. Approval can take months, but the prerequisites are fairly permissive compared to banks.
If an SBA loan isn’t for you, the next step is to seek financing from an online lender. These will tend to have the most flexible requirements. But their terms will not be as good as a bank loan. Online lenders are a great way to recover from a spotty credit history. Just keep in mind that you will pay for the opportunity to repair your credit and get back into business with a new business loan.
We recommended that you consult a qualified business credit expert before you apply for any type of business credit such as loans, credit cards, vendor credit, and the like. If you require funding for your business, a highly qualified business credit expert will have the ability to guide you through the process of obtaining startup or working capital. They will help you learn how to repair your business credit history and your personal credit score in the process.
She has spent the last decade assisting entrepreneurs with starting new businesses, obtaining startup and working capital and growing their customer base.
She enjoys writing about her experiences as an entrepreneur and using data and information from reliable sources to back up what she writes about. Through her writing she aims to educate other entrepreneurs on how to obtain capital and build successful businesses doing what they love.