Having little to no knowledge of how a small business loan works can make it difficult for first-time applicants. A lot of frustration comes from the consistent disapproval of your applications.
To increase the chances of approval, here are five easy steps in getting a small business loan:
1) Qualifying for the loan
The first step is to check if you have a good standing on your credit report. Next, you have to be at least one year in business to qualify for most online small business loans while two years for most bank loans.
As an entrepreneur, you also have to have enough money to afford the payments you are interested in. Make sure you have enough collateral ready so that the lender feels safer when lending money.
2) Type of loan
There are three main categories in determining which business loan is the best one. When starting a business, entrepreneurs will need to rely on startup financings such as credit cards and personal loans.
If you want to manage daily expenses, the business line of credit would make the most sense. Lastly, if you definitely want your business to grow, consider getting an SBA loan or the traditional term loan.
3) Comparing lenders
There are three varying sources for obtaining small business loans: banks, online lenders, and nonprofit microlenders.
- Traditional banks require that your business had been active for two years, had good withstanding credit, and does not immediately need the cash.
- Online lenders are the simpler option if you lack collateral, time in business, and if you need the funding quickly.
- Microlenders, from their name, only offer small loans that are short-term.
4) Complete documents
Before applying, save yourself a lot of trouble and make sure all your documents are complete.
Locate all the necessary files such as your business plan, legal documents, financial statements, and bank statements to make the process faster.
5) Applying for the loan
Once you’ve identified the type of loan and the right lender, it’s now time to apply. Look at different options based on both the annual percentage rate and the loan terms.
This is the best way to understand the total cost of a business loan for that year. Apply for the loan with the lowest APR and submit all the documents you’ve gathered.
Why Funding Your Business With A Business Loan Is A Smart Idea
Many people often assume that businesses borrow money because it’s struggling. However, nothing can be further from the truth. Most successful businesses often fund the operation and even expansion of their companies with a business loan. Funding your business is a smart idea and it will benefit your business in the long run.