The good news is that state and local economic-development agencies and various nonprofit organizations provide low-interest loans to small business owners who may not qualify for traditional commercial loans.

Whether you are applying for a business loan through these lending institutions or applying for a traditional commercial loan, these four tips will help you prepare for this next step in your career:

1. Research Lender Options
   

You need to do your homework on the financial institution in which you’re considering applying for a loan from. Lenders can perceive ‘good risks’ differently from each other.

Whether a business owner and the business is a good risk is a major concern of any financial institute because regulatory requirements sometimes influence the types of loans that can be approved.

2. Script Out Your Need
   

The top reasons for declined loans are related to the quality of the business’s earnings or cash flow or the business’s insufficient collateral.

In order to meet the lender’s requirements, make sure you ask a lot of questions to eliminate any confusion. Then, have a detailed plan of how you are going to use the money and how you are going to repay it.

For instance, identify whether you plan to purchase new equipment for your business or whether it will go towards working capital. You may have a different reason for why you need funding, too.

Also, explain what caused you to need help with funding. The document you prepare explaining all these points doesn’t have to be lengthy. It could simply be one handwritten page.

3. Prepare These Materials
   

If you don’t have the correct collateral, the lender will decline your loan. They don’t have time to work with a business that isn’t prepared.

You will be required to fill out a loan application form, which varies among lending institutions, but all of the forms require the same information. You will need to use the information discussed in step 2 on the form. You will also need to have this information below prepared before hand in order to fill out the form completely:

• Your personal background including your previous address, criminal record, educational background and previous names used, etc.

• Your management team members

• Other business debt you have and who the creditors are

• Assets that need purchased and who the suppliers are

4. Supply These Other Required Materials:

• Business Plan – You will be expected to submit a business plan along with your application. A business plan is a living document that projects your company’s plan on how it will increase revenue 3-5 years ahead. The plan should include a set of projected financial statements including:
  • Cash flow
  • Balance sheet
  • Profit and loss

If you’re not sure how to write a business plan, the U.S. Small Business Administration is a great resource that provides articles on how to create each part of the plan. There are various sections that make up a business plan ranging from the executive summary to a section describing how you plan to market your business.

• Credit Report – This is kind of a no brainer, but all lending institutions are going to obtain your personal credit report in this process. But, before you apply for your loan, you should run a credit report from all three major consumer credit rating agencies.

Inaccuracies on your report could hurt your chances of getting approved for a loan. It’s pertinent to clear these up before you start applying for a loan, which could take some time.

Be prepared to submit a credit report for your business if you’re already in business. You should check your business credit report prior to applying for a loan for inaccuracies, too.

• Resume – Some financial institutions may require resumes for evidence of business or management experience, especially if you are using the loan to start a business.

• Income Tax Returns – Include personal and business tax returns from the last three years.

• Accounts Receivable and Accounts Payable – Many loan programs will require information on your business’s current financial position. Again, before you even start the loan application process, make sure to have accounts receivable and accounts payable.

• Legal Documents – Be prepared to submit one or more of these legal documents (if applicable):
  • Articles of incorporation
  • Copies of contracts you have with any third parties
  • Franchise agreements
  • Commercial leases
  • Required business licenses and registrations

• Financial Statements – According to the U.S. Small Business Administration, “Many loan programs require owners with more than a 20 percent stake in your business to submit signed personal financial statements.”

You may be required to provide projected financial statements as part of your business plan or separately. These forms could be used to prepare your projected financial statements:

• Bank Statements – Many lenders require one year of personal and business bank statements.

• Income Statement

• Cash Flow

• Balance Sheet

One take away from all of this is that you need to be more than simply organized. All of these materials need accurate information because you will be denied a loan if you include false or misleading information.

Another thing to keep in mind: you should apply for funding before you need it.

And, good luck! But, if you’re prepared and are in good financial standing, you won’t need luck on your side!