How Your Personal Credit Affects Your Chances of Getting a Business Loan
By John Williams
Your business idea first begins with a dream,
and then extends to a passion. The passion
to do what you love leads you to need financial
assistance. Having the means to expand on
your passion will bring hope to your livelihood.
Does your personal credit affect your chances
of getting a loan to begin the business of
your dreams? We will explore this question.
All lenders, especially local banks,
will do a thorough check of your personal
credit history. It most likely will affect
your chances of receiving or being declined
for a business loan.
You can increase your chances of receiving
approval for a business loan by paying
close attention to the following personal
credit factors:
* Show a steady source of income. Changing
jobs prior to or not having employment
will decrease your chances. Lenders need
to see stability.
* Credit card balances should be paid
off or carried at low amount. Never cancel
a credit card or apply for a new one prior
to applying for a business loan.
* Obtain credit reports from all credit
bureaus to check for accuracy. Almost
half of the reports have been found to
contain errors.
* Determine a manageable down payment
amount. It may mean rejection or approval.
Lenders want to be assured the person
they are loaning funds to is capable of
managing personal finances because it
will reflect spending habits within a
business. Always be honest with lenders
about your personal credit history. Anything
you cover up can be deemed as fraud and
will further you from getting the financial
assistance you need. Honesty about past
financial failures with explanation is
your best investment for getting a business
loan. Finally, before you approach a lender
concerning your business, financial needs
need to be organized with key documents,
a business plan, financial statements
and a repayment plan.
In order to get a business loan, a business
owner must think like a bank. If he or
she is not prepared, most likely, the
loan will be turned down. Business loans
are somewhat different than personal loans;
in addition to having a good credit standing,
usually banks and financial institutions
require business owners to supply a well
thought out business plan. Banks want
to be assured that the business owner
will repay the loan, even if the business
goes into default.
A well-thought out business plan should
include the following:
* Cover letter or executive summary
* Photographs of the business, if possible
* A description of you, your business
and the history of the business, along
with your background regarding the business.
* Any collateral or fixed assets to be
acquired with the loan and their cost
(include appraisals on real estate and
recent tax appraisals).
* Market or target audience, potential
or existing customers; competitors and
supplier information
* A good marketing plan, which should
include advertising and public relations
* Financial soundness of the plan, which
includes Cash Flow Projections, projected
Profit/Loss summaries, any business credit
reports, copies of any business tax returns,
lease agreements, any contracts with customers,
etc.
* Business license, Franchise Agreements
(if applicable), any other construction
contracts, partnership agreements, employment
agreements; environmental assessments
if necessary, and copies of any other
financial paperwork of worthiness
* Summary, which lists the benefits from
the loan and a brief statement indicating
how the loan will be repaid
In addition to a well-thought out business
plan, a business owner will most likely
find that most institutions require personal
financial information as well. Be prepared
to present the lender with personal financial
statements, personal tax returns, an up-to-date
credit report, and resumes or letters
of recommendation from former partners
or proprietors. It is the business owner’s
responsibility to ensure the lender that
the business is of little risk, because
after all, they are in a business for
profit as well.
John Williams is the business loans blogger
at http://businessloans.blogspot.com
He reviews business loans and interprets
complicated financial data into simple
to understand language.
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