As a new business, you won’t have any financial or credit history to prove to a lender that you will repay a loan. However, you can still make some preparations in order to secure a loan to start a new business such as build personal credit and develop a solid business plan.
Before beginning the application process, you can improve your chances of qualifying by doing the following:
- Improve personal credit: Lenders may use your personal credit score as criteria for giving a startup loan. You’ll want to have a strong personal credit score over 700 to feel confident about meeting requirements.
- Save money for a down payment: Not all lenders will require a down payment. However, new businesses that put 20%-30% down can qualify for a better loan.
- Put up collateral: New businesses can secure a loan by putting up collateral. Collateral refers to an asset pledged to a lender in the event of a default. If the borrower does not repay the loan, the lender can seize and sell the asset to recover some of the loan. With a business loan, you can use collateral such as new or used equipment, land, or real estate.
- Create a business plan: Lenders will want to know how you plan to repay the loan. New businesses should develop a business plan and presentation to prove that they have a plan to succeed and repay the loan.
- Prove your experience: You have a better chance of qualifying for a new business loan by demonstrating previous work experience. Prepare a resume that highlights your success in business or partner with someone who has at least 5-10 years of experience.
By coming up with a good strategy, building credit, and applying for the right loan, you have a better chance of securing funding to help start and grow your new business.