Taking Your Trade to the Next Level: How to Secure Financing for Your New Skilled Trade Business
Starting your own business can be nerve-wracking. There are so many pitfalls to avoid and things to remember! Securing financing through a bank loan is one way of helping bankroll your venture, but you can expect a lot of paperwork and red tape to stand in your way. However, there’s no need to panic—taking it one step at a time will help you get a handle on your budget and prepare you for the future. But what exactly do those steps entail?
Create a solid business plan
This is the cornerstone of your loan application, the chance for you to show the bank everything about your planned company, including how you plan to make money, what the specific costs are to run the business, and where your funding will come from. Without a solid business plan, no bank is going to be interested in investing.
Check your personal and business credit scores
It’s always a good idea to have an estimate of your personal credit score, but it’s more important than ever if you’re looking to apply for a business bank loan. While banks usually want to see a credit score of at least 680, some banks may accept scores in the mid-500s. Regardless, you’ll want to build up your business credit score as well—this can be done by opening a business bank account and credit cards under your registered business name in order to establish a record of payment history.
Figure out how much money you’re (really) going to need
It’s better to overestimate than underestimate here. Since banks will expect repayment on a monthly basis, it’s important to be completely transparent with your finances in order to realistically decide how much you can pay back (and when).
Research what kind of loan you ideally want
There are many different options for small business loans. You’ll want to familiarize yourself with them before you submit your paperwork or speak to a bank representative. These can include term loans, commercial real estate loans, and equipment loans—but some of the most common ones include:
- Line of credit
This allows your business to borrow up to a pre-approved amount of money. You only have to pay interest on the amount you’ve used so far (not on the total line of credit amount).
- Business term loan
This loan is very similar to a personal loan and often offers a fixed interest rate with a monthly or quarterly repayment required. Just like a personal loan or mortgage, this loan is coupled with a predetermined end date that often lasts anywhere from around two to ten years.
- Unsecured business loan
This loan doesn’t require you to provide any collateral in order to borrow money from the bank. As you can imagine, however, this can be quite the risk for the bank—so be prepared to pay dearly when it comes to interest rates. Many traditional banks shy away from this option since it’s inherently riskier than other forms of loans. That means you might have better luck with this type by going through an online or “alternative” lender.
Gather all required documentation as stated by your specific bank
Specific requirements vary from bank to bank, so be sure to know what yours needs. And remember you always have the option of submitting your loan application to a few different banks in order to shop around for the best deal. In general, most banks will require similar documents such as your business plan, bank statements, business tax ID numbers, business license and registration, and collateral.
Once you’ve got your paperwork in order, it’s time to make an appointment at the bank. Before embarking on the adventure of starting your own business, there are some definite pros and cons to consider. But once you’ve made up your mind to take the plunge, your dream of business ownership is that much closer to becoming a reality.