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Whether you’re looking to expand your product line, hire more staff, or invest in new equipment, a business loan can unlock your company’s potential. However, the key to obtaining a loan that will truly help your business grow is to plan ahead and feel confident that you’re ready to take on additional debt before diving in.

This checklist of key factors to consider before applying for financing—whether it’s your first loan or you’re seeking additional funding—can help you determine if you’re truly prepared to take on debt or if more work is needed to position your business for success.

So, let’s dive in and explore the five essential questions you should ask yourself to ensure you’re making the most of your financing opportunities and positioning your business for long-term growth.

Small Business Loan Readiness Checklist

#1 If you already have business loans, are you able to comfortably make payments on them?

Having multiple loans at the same time can be a successful growth strategy, but being able to comfortably pay the loans you already have is essential before borrowing again. Talk with your accountant and make sure the numbers make sense.

#2 Are you planning for upcoming growth?

Lenders like to see how a loan will lead to business growth, so be ready to describe your plans in detail. For example, if you’re seeking financing to hire additional staff, explain how these new team members will contribute to increased sales. If you’re looking to purchase new equipment or machinery, outline how this investment will expand your production capacity.

By clearly connecting the dots between the funds you’re requesting and the specific ways they will drive your business’s growth, you’ll demonstrate that you have a thought-out strategy and are a strong candidate for financing.

Remember, the best time to apply for a loan is before your business starts growing. Plan ahead and start applying at least a few months before you’ll need the funding to avoid high-cost, short-term loans that can put your business’s success at risk.

#3 Do you know how you’ll use the funds?

Similar to how you’ll need to show a plan for how you’ll grow with the loan, you’ll also need to have a clear plan for how you’ll spend it. Carefully consider everything you need to purchase or invest in to make your plan possible.

For example, if you’re applying for a new contract, think through everything you’ll need to spend money on to successfully execute it, including hiring staff, purchasing equipment, investing in training, and upgrading machinery. Speak with vendors and do online research to get accurate estimates for everything you’ll need.

#4 Is your business financially healthy?

Assess your business’s financial health by considering the following. If the answers to most or all of these questions are “yes,” you’re well-prepared for a loan.

  • Is revenue growing and are expenses controlled?
  • Can your existing and projected cash flow support loan payments?
  • Are you able to pay yourself a salary? (Knowing what you want to make for yourself shows you have a plan.)
  • Are you up to date on all personal and business taxes? Be upfront with your lender about this; it’s okay if you’re behind as long as you have a payment plan in place.

#5 Do you have easy access to your business’s financial documents?

You’ll typically need to provide your last 3 years of business tax returns, profit and loss statements, debt schedule, and balance sheets to your lender when applying for a loan. For the debt schedule, it’s essential that this covers your business debt, not your personal.

Even if you’ve borrowed from a lender in the past, they will need to see updates to these documents, so it’s good practice to always have them up-to-date and handy.

If you’re seeking additional financing, contact Grow America

If you’re considering applying for another loan, reach out to our friendly team at Grow America. We’re here to help you determine if you’re ready to take this exciting next step and apply if the answer is “yes.” We believe in building lasting relationships with our clients and hope you’ll consider us your trusted lending partner for the long haul, supporting you as your business grows and thrives.