One of the things you may want to consider for starting up your handmade business is applying for a small business loan. If it sounds daunting, we’ll walk you through the steps on how to get a small business loan so you can make the a decision that is right for you and your individual needs.
Here are our best tips on how to get a small business loan:
Step 1: Determine the Amount You Will Need and Your Ability to Repay
One of the most important steps in applying for any loan is determining the amount you need to borrow and your ability to repay the loan. Here’s some tips for this process:
- What will you be using the loan for? What are your goals that you hope to achieve by applying for a loan?
- How much do you need to borrow in order to achieve these goals?
- How long will it take to earn back the money borrowed?
- How will you repay the loan if your business does not earn any income at first?
These are all important questions to ask yourself, because lenders are not going to think about your “potential” – they are only going to assess your current income and your ability to repay the loan based on what you can prove you are earning, whether it’s from your business or another source such as a part-time job.
Step 2: Know Your Credit Score:
You can get credit score reports from a number of sources, but be wary as some of these can be scams or inaccurate. We recommend going with a reputable credit reporting bureau, though there are some legitimate free credit report companies out there, such as CreditKarma.com.
Your credit score is important for a number of reasons:
- It helps lenders understand whether you are high risk
- It can greatly influence your interest rates
- It helps you shop around for the best rates and terms for your needs.
Step 3: Research the Type of Loans Available
Most true commercial business lenders are not going to be interested in your small handmade business. They are going after large accounts, and your small business is probably not going to be the right fit for that type of loan unless you have some awesome credit and pretty big ideas.
Instead, you may want to consider a small unsecured personal loan for the purposes of your business. Personal loans do tend to carry high interest rates, since they are unsecured, but the process for applying one can be much easier. Shop around at different financial institutions, such as banks and credit unions, to find the right solution for you.
Step 4: Apply for the Loan
The lender you work with will help you determine what paperwork and documents you should bring with you. You will likely need a valid form of legal ID, past tax returns, proof of income, and any other documents the lender requests. Make sure you show up for your appointment with the loan officer prepared!
Step 5: Use the Funds Wisely and Make Payments
Once the loan application is approved and the funds are available to you, it’s important that you use this money wisely. Invest in things that will make your business more efficient and profitable. Also be sure to keep your credit in check and make the monthly payments to repay the loan back.
While getting a business loan is not for everyone, and it does have some risks to your credit if you are unable to pay it back, it can be a way to start or expand your handmade business to take it to new heights.
Have any experiences with small business loans you would like to share? Comments with your thoughts, questions, and tips for how to get a small business loan are always welcome below!