What do you do if you have a brilliant business idea and you do not have enough cash? Obviously, you apply for a loan! But do not be afraid to ask for a loan because there is nothing scary about it (provided that you are aware of the process). Application for a business loan is more like getting an extension of deadline for a difficult homework from your strict professor. 😄
First of all, define the type of the loan you want to take. Banks are not happy to hear “Give me some cash” or something alike. They want a business plan convincing that the loan will not be used for personal purposes. A business plan is a must if you are applying for a loan. Your business plan should contain detailed information about the product/service, target market, your costs and earnings.
Your business plan is the homework assignment for a bank. Tell them who are your potential clients, what is your cost structure and profit forecasts. Why should people prefer to buy your vintage sneakers instead of buying them on eBay, for example?
It is extremely important to find out your credit score before applying for the loan. It is like the GPA rating for loans. Poor credit score equals zero chance of getting a loan. As you are a student, it is highly probable that you do not have a credit score at all.
It is very important to understand that there are different types of business loans available. So do not just rush to the bank and explain your problem. For example, there is a program of SBA 7(a) loans for general purpose provided by the Small Business Administration. There are also different opportunities to take microloans for small amounts, like Kiva or Accion.
Gather all the required documentation before applying for a loan to prove your eligibility. It will include tax returns, bank statements and all the other paperwork, including your LLC registration certificate. Prepare all the documents in a folder – it will show the bank how professional you are.
Do not be afraid of being refused when applying for a loan – it happens all the time. Even Shark Tank contestants do not get financing always. However, do not give up – ask why you failed to apply better next time.