A loan is often needed when growing the business but to get your loan approved is difficult especially for small business owners. However, it is not impossible not unless you prepared for it.
Here are the steps to getting a small business loan:
Determine Why You Need A Loan
Ask yourself why do you need this loan? Is it necessary for the business? These will be asked to you by the lenders but without good reason, lenders won’t approve your request.
Common Reasons Why Business Owners Get A Business Loan
- To start a business
- To grow or buy a business
- To manage your working capital – Working capital is your day-to-day cost.
- Equipment Financing
- Refinancing debt
Know Your Credit Score
If you are a small business or if it is your first time applying for a business loan, make sure that you have a good personal credit score. It is a good measure of how responsible you are in paying the business loan.
Determine How Much You Need
Know how much you need and what you can afford. It is very tricky because these two should balance each other. Lenders won’t approve unrealistic loan amounts and even if they do, you will eventually get caught under a file of debt. It is also not good to underestimate the loan amount because it can negatively impact your business operations or you can miss opportunities. Have detailed research and financial projections done with supporting documents. You could hire a financial professional to aid you.
Do Your Research On Lenders
There are different types of lenders like banks, microlenders, and online lenders. You should find a lender that is suitable for your needs.
- Banks usually lower have an annual percentage rate (APR) but have a strict requirement like having collateral and good credit score.
- Microlenders offer short-term loans for small businesses like The Lending Club.
- Online Lenders are applicable to those who lack collateral, have insufficient documents or needs urgent funding. The annual percentage rate (APR) for this is higher than the banks.
The lenders want to know if you have the capacity to pay so they will ask for various documents. These are the documents you need to submit depending on the lender. You could ask for the help of a financial professional to aid you, especially with the financial projections.
- Financial reports
- Business plans
- Financial projections
- Business and personal tax returns
- Business documents (articles of incorporations, contract of lease)
- Bank statements
Make sure to prepare the supporting documents before asking for a loan so that the lender can approve your loan quickly. Once you provide all the necessary documents, the lender will need time to assess your qualification.
The bottom line here is knowing what loan your business needs and how much you can take and choosing a lender that suits best to your needs. You need to do your research to come up with a good plan.
If you need assistance on bookkeeping, tax preparation or your loan application, contact us today at email@example.com or 832-437-0385.