5 Key Steps to Apply for a Small Business Loan
Small businesses apply for a loan to get off the ground or to keep operating. They get financial support mostly in the form of a business loan. Small businesses can apply to get a commercial loan from banks, credit unions, and other financial institutions. Most of the time, banks provide loans to running businesses and not start-ups, so other financial institutions are the best options for new business owners.Every small business at some point needs extra capital in addition to incoming cash flows. Sometimes, they need funds when an emergency pops up, at other times the business may need new equipment to replace broken or outdated machinery. It might be so that an entrepreneur wants to start the business and register a company to launch the product but has no access to money. In these circumstances, many small business owners decide to take a small business loan and fix their financial problems. Here are the different types of business loans offered by commercial banks, based on different terms, uses, and rates.
Table of Content
- Long-term fixed-interest commercial loan
- Construction loan
- Refinance loan
- Hard money loan
- Interest-only payment loan
- Short-term bridge loan
- Blanket loan
How to apply for a Small Business Loan?To fulfill your small business loan requirements, follow the steps mentioned below and apply for the same.
- Determine why you need this loan
- Determine which type of Loan do you need
- To start the business
- To grow the business
- To have a safety cushion
- To manage day-to-day expenses
- Determine Your Borrowing Options
- Use banks when-
- You have good credit
- You don’t need cash fast
- You can provide collateral
- Use Microlenders when-
- Use Online Lenders when-
- You need funding quickly
- You lack time in business
- You lack collateral
- Evaluate your Credit Score and Credit History
- Gather your documents and Apply for a Loan
- Personal and business income tax returns
- Balance sheet and income statement
- Personal and business bank statements
- A photo of your driver’s license
- Commercial leases
- Business licenses
- Articles of incorporation
- A report that has the relevant management and business experience details
- Financial estimates in case you have a limited operating history
Experienced business owners are clear about the reason and the amount of business loan they need. However, start-up business owners may struggle with the process of figuring out the loan amount they need and why they need it.
Businesses need to prepare their financial statements to address the question of how much they need. It is important to take some time and determine the reasons you need the loan and the amount of the loan you may need.
Being a small business owner, before you apply for a loan, try to take advice from some experienced business executives. Recall the reasons and find out which type of loan fulfills your small business loan requirements.
Here are four reasons a small business may need to apply for small business loans
You can get a commercial loan from several places including online lenders, banks, non-profit microlenders, etc. These money lenders offer term loans, accounts receivable financing, and lines of credit.
You need to shop for small business loans just as you would shop for any other product that you need to buy. Find the best available option and then apply for a business loan.
Once you figure out which type of financing vehicle or money lender is right for you, compare the options based on the annual percentage rate, total borrowing cost, and terms. Of the loan options you qualify for, select the one with the lowest APR, so that you can handle the regular payments of the loan.
Learn about the borrowing options in detail.
You do not qualify for a traditional loan because your company is a start-up or too small
Microlenders lend short-term business loans of less than $35,000. The APR on the loans that they offer is typically higher than that of bank loans. You need to provide the lenders with your detailed business plan and financial statements when you apply for loans. The application may also require a description of what the loan will be used for.
Moneylenders review your credit history and credit score before they approve the loan. In case you have a start-up business or if it is less than three years old, your personal and business credit history will be evaluated. Plan and get your personal credit history in order before you apply for a small business loan. You can get your credit report from any credit reporting agency.
Go through the whole history and if you find any errors, communicate that to the agency and get it fixed. You can get in touch with them by writing a letter or by sending an email. File a credit dispute report if the agency does not fix the error. It is almost impossible getting a business loan with a bad credit score, you do not even qualify for government small business loans with a bad credit score.
This may be your most important step. To get a small business loan by the government or just about any lender.
After you have compared the options, it’s time to apply for the loans that you qualify for and those that fit your financing needs.
Gather the required business loan documents, depending on the lender. Prepare an application with the combination of the following documents:
ConclusionBefore you submit your application for getting a small business loan, give it a second look and check if you have made compelling case for yourself. You can also prepare an application for the loan officer and the presentation of your business plan. Include an executive summary of why you need this loan in the package that you have prepared to hand to your loan officer. Many experienced loan officers go through the Executive Summary first and then decide whether they are interested in considering the application. Book an appointment with the loan officer and ask for enough time to do a short presentation based on your business plan. Keep it brief, concise, and organized.
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