When you are planning to start or grow your business, a business loan could be a valuable resource, but navigating the loan process, as well as tightened lending standards, can be daunting. In short, understanding your business’s goals, finding a lender, and understanding the application process can help you secure the financing you need for your business.
Here are five easy steps for getting a business loan
1) Find out if you are qualified for a business loan
To guide you accordingly, answer these questions to the best of your knowledge:
How long have you been in operation?
Lenders will want to know how long your business has been running. Businesses running for at least a year are less likely to fail than those that are just starting. Most lenders will require your business to have been in operation for at least a year for you to qualify for a business loan.
What is your credit score?
Like any loan, approval of your application will depend highly on your credit score. A higher credit rating means that you are prompt when it comes to repayments of debts and loans, assuring the lender that you are a responsible borrower.
Do you have collateral?
Most business loans are “secured loans.” Consequently, this means that for an application to be approved, the borrower will need to present collateral in the form of tangible assets that the lender can take in case the borrower is unable to repay the loan.
For further information on getting an unsecured business loan Click Here |
Is your business making enough money?
Lending money is a big risk for lenders, hence why they need to make sure that your company is making enough money for you to be able to pay off your loan dues. Aside from your business’s financial capacity, you can also present your other sources of income to back up your financial claims.
2) What kind of loan do you need?
When you decide to apply for a business loan, the lender will ask you why you need to get one. In this case, your answer will most likely fall into one of these categories:
Starting a business
Lenders require borrowers to have a stable cash flow to repay the loaned amount. Businesses that are less than a year in operation will most likely be denied the loan. Therefore, they will have to find other types of financing for startup businesses such as personal loans or business credit cards.
Manage day-to-day expenses
For this kind of need, lenders might suggest you get a business line of credit. This type of flexible financing allows business owners to tap into the funds only when needed such as for payroll, repair, or as a safety net.
To grow your business
Lenders will determine what type of business loan you will need for this undertaking. A government-backed Small Business Loan, for example, is most likely the option you will be given as it has a higher borrowing cap.
3) Compare lenders
Different business loan lenders have different policies. Therefore, it pays to compare and do a bit of research when it comes to choosing the best lending company that suits your financial needs and your capacity to pay. If at all possible, take expert advice to be guided accordingly.
4) Prepare your documents
Before applying for an important business loan, make sure you have all your needed documents handy. This makes the loan application a lot easier on your part, given that you already have all the loan requirements on hand. Depending on the lender that you have chosen, the documents you need are, but are not limited to:
- Tax returns (Personal and Business)
- Bank statements (Personal and Business)
- Your business’s financial statements
- Legal documents (franchise agreement, commercial lease, etc.)
5) Apply for the business loan that you have chosen
Now that you have everything you need, there is only one thing left to do—apply for a business loan. Firstly, of the possible loans that you can apply for, choose the one that has the lowest annual percentage rate.
In addition, the APR is inclusive of all the loan fees on top of the interest rate, which is why it is best to understand the total cost of your business loan for a year.
Key Strategies That Could Help You Get Approval When Applying For A Business Loan
Whenever applying for a business loan, always keep in mind that, to get approval, it’s all about gaining the confidence of your loan officer. The problem, however, is sometimes business owners overthink and present unnecessary information that the officer isn’t too interested in. Therefore, what you should do is focus on these key strategies to help you get the green light.
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