Loans are a common way for freelancers and online sellers to get capital for starting, running or growing their business, and banks are the common go-to for these solopreneurs. You should know, however, that banks aren’t necessarily the best or the only way to get additional financing for your business.
Lending companies provide business owners like you with an alternative to banks as a source of extra capital. Though lending companies might be easier to deal with compared to banks, the loan application process is similar and will also need some preparation.
What can I do to make it easier to apply for a loan?
Before checking out our five simple tips below, you’ll want to make sure you’re borrowing from a reputable or trustworthy lending company. Find out if the company you have in mind is registered with the SEC, and ask around to see what kind of experience people have had with that company when taking out their loan.
1. Be honest with yourself. The plain truth is that a loan can sink you even further into debt. This is why you have to know exactly why you’re borrowing money, when you’ll be able to pay it back, and how you’re going to earn the money you need from your business as a freelancer or online seller.
Avoid agreeing to a shorter period of payment because you want to think that you can pay it all earlier. Don’t tell the lending company things like you plan on getting a second job or that you’ll have another source of income soon when you aren’t even sure of it. And if you’re borrowing money to buy something for your business, make sure you know the extra expenses involved.
Overall, do not overestimate your paying capability and underestimate the loan. Just like banks, lending companies appreciate an honest customer, and will value your sincerity in repaying what you borrowed.
2. Present all the requirements during your first meeting. It may take more than one meeting with a lending company to borrow money from them. Before you go to your first meeting, make sure you have all the requirements ready to show them. These requirements include proof of your employment and residence, tax forms and valid ID’s.
This will help the lending company to get to know and trust you as soon as possible. They’ll want to grant a loan to someone who has a proven history of paying dues, a stable source of income, and regularly filed tax returns.
Most loan applicants show up at their first meeting with missing documents, which means anyone who goes with a complete set of requirements will be prioritized. This saves time and effort for the lending company as well as yourself.
3. Keep neat financial records and boost your savings. One of the first things the lending company will want to know is whether you have unpaid loans, or how you paid for loans you’ve taken out before. Keeping neat financial records means keeping your records updated and accurate—nothing omitted or edited in a dishonest way.
This means that even if you do have unpaid dues, the lending company will be able to see that you can pay for the loan you’re applying for. It will help if you’re able to show the company that you have ample savings, which you can increase by making smart spending decisions.
4. Calculate the interest rate beforehand. It’s always a good idea to do the math for your loan’s interest rate because your loan expenses will go up as time goes by. Note that the charges will depend on how much you’re borrowing and what kind of loan you’re taking out.
You’re definitely going to end up paying more than the original amount you borrowed. If your calculations show that the regular payments are going to be more than you can realistically manage, you may have to think twice about how much you’re borrowing.
5. Ask questions about the fine print. The last thing you want is a penalty or losing your house or other assets because of something you missed in your loan agreement. Be sure to ask questions about anything you don’t understand about your loan, no matter how small, be it the interest rate, penalty charge, payment period or how much you need to pay per installment.
Besides, lending companies like applicants who ask questions because that assures them that you know exactly what you’re getting into, and are serious about paying the loan back.
Do you need help preparing the requirements for borrowing from a lending company? Ask an accountant from one of our Partner Firms, today.