Loans serve as a common avenue for freelancers and online sellers to secure capital for initiating, operating, or expanding their businesses, with banks being the traditional choice for these solopreneurs. However, it’s important to understand that banks are not necessarily the optimal or exclusive solution for obtaining additional business financing.
Lending companies present an alternative source of extra capital for business owners like you, and they often offer a more approachable experience than traditional banks. Nevertheless, the loan application process remains somewhat similar and requires adequate preparation.
Streamline your loan application process
Ensure you are dealing with a reputable and trustworthy lending company. Verify if the company is registered with the SEC, and gather feedback from individuals who have previously engaged with the company for loans.
Consider the following five essential tips before implementing these tips:
- Self-assessment and honesty are key: Recognize that taking out a loan can increase your debt burden. Therefore, it is vital to clearly understand why you are borrowing, when you can realistically repay it, and how your freelancing or online selling venture will generate the necessary funds. Avoid making overly optimistic commitments, such as planning to secure a second job or expecting an additional income source when uncertain. If you’re borrowing to invest in your business, be thorough in assessing the associated expenses. Honesty regarding your repayment capacity is highly valued by lending companies, much like traditional banks.
- Present all required documents upfront: Your interactions with a lending company may involve multiple meetings. Ensure you have all the necessary documents ready before your first encounter. These documents typically encompass proof of employment and residence, tax records, and valid identification. This proactive approach helps the lending company establish trust more quickly, as they prefer clients with a proven track record of meeting financial obligations and a stable income source.
- Maintain organized financial records and bolster savings: Lending companies are interested in your loan repayment history and financial stability. Therefore, it is crucial to maintain well-organized financial records, keeping them accurate and complete without any omissions or manipulations. Even if you have unpaid debts, transparent records can demonstrate your ability to manage the loan you’re seeking. Accumulating savings is also beneficial; sound financial decisions can help increase your savings, which strengthens your financial position.
- Calculate the interest rate in advance: Calculate the anticipated interest rate for your loan before committing. Over time, the cost of your loan will rise, and these charges depend on the loan amount and type. Be aware that you will eventually pay more than the initial borrowed sum. If your calculations indicate that regular payments might become unmanageable, it’s wise to reconsider the loan amount.
- Scrutinize the fine print and ask questions: Avoid unpleasant surprises or potential risks in your loan agreement by thoroughly examining the fine print. Don’t hesitate to seek clarification on any aspect of your loan, no matter how minor, such as interest rates, penalties, repayment terms, or installment amounts. Lending companies appreciate applicants who ask questions, as it demonstrates your commitment to understanding the terms and repaying the loan responsibly.
Do you need help preparing the requirements for borrowing from a lending company? Ask an accountant from one of our Partner Firms, today.