If you’re building a business whether it’s a start-up or an expansion, you’ll need business capital. If you’re loaded with cash you’re all set, but if not, you’ll probably need a business loan.
Unfortunately, many lenders deny more loan applications than they approve because businesses don’t meet their stringent requirements, which leaves those business flailing among the competition instead of flourishing. However, there are a few ways you can better your chances of getting a business loan.
Keep reading to the learn the step you should follow when applying for a business loan.
Step 1: Assess Just How Much You Need
You’re applying for a business loan with an intended purpose, so you should know.
You’re applying for a business loan with an intended purpose, so you should know how much it will cost to get it done.
If you need money to expand your workforce you’ll need enough to cover new workstations and salaries for a specified amount of time. Do the math and don’t forget to factor in the incidentals that may arise.
If equipment is what you need, price the equipment and the number of units you intend to buy. Factor in any maintenance costs for the foreseeable future.
Furthermore, if you want to open an additional location you’ll need more information. And incase you’re leasing, you need to know your monthly payments as well as your utility costs. When buying land, you’ll need money for the land as well as the cost of developing it for your business and new employees.
Step 2: Determine the Type of Business Loan You Need and Why
There are several types of business loans, and each type has benefits for specific purposes. As such, you’ll need to know why you need the loan and what you’ll be using the bulk of it for.
There are loans for expansion, loans for day-to-day operations and loans for equipment.
One of the most common types of business loans is a term loan. With this type, you can get money quicker and in larger amounts than other types of loans. You can use this loan for any business need including to expand locations, the workforce, or to buy equipment.
Step 3: Figure Out Which Lender is The Best Fit for Your Needs
You can get a business loan from three types of lenders: banks, online lenders and microlenders.
Banks are traditional lenders with the most rigorous application process. They lend larger amounts but the interest and fees can be a disadvantage.
Online lenders are great for small businesses and those who are looking to have cash in hand quickly.
Microlenders are non-profit lenders that don’t consider their potential profits to approve or deny a loan. They aren’t in the business of making money, rather they’re interested in improving communities and economically disadvantaged areas.
Microloans are smaller loan amounts than banks and online lenders usually offer, which can be beneficial if you don’t want to borrow more than you need and want smaller repayment amounts.
Each lender has its pros and cons. Start by researching which lenders are compatible with your business. Some lenders are more likely to fund startups while others prefer businesses that have longevity.
Others specialize in particular industries. Learn what industry each lender provides loans to so you don’t waste time applying for with lenders you had no chance with.
Step 4: Know Your Credit Status
Lenders are likely to consider personal financial history or credit score when deciding to approve or deny your business loan application.
If your credit score needs extra attention, work on it before applying for a business loan. Pay off the lowest balances first, then work on each item until your credit score improves.
Credit scores range from 300 to 850 points. Very poor (300 – 579), fair (580-669), good (670-739), very good (740-799), and excellent (800-850) are the possible credit scores. Lenders typically prefer credit scores of 650 and above when approving a business loan.
The lower your score, the riskier you are considered and may be denied. You might be required to provide collateral to cover the cost of the loan if you default. Collateral includes property or equipment that the lender could to recoup their losses.
Your payment history has a hefty impact on your score, making regular payments can help improve your score fairly quickly. Other things you can do are to monitor your score regularly and watch for areas that need improvement.
Step 5: Get Your Documents in Order
When applying for a business loan there are a few things you’ll need to provide a potential lender.
Many businesses start without a written business plan, but when approaching a lender, they’ll want to see that you’ve put some thought and effort into building a profitable business. If you don’t have one, now’s the time to write one.
Your business plan should include your mission statement and business goals and strategy on how to achieve those goals. It should identify your products and services and target customer base. When you’re looking for a loan, it must contain the amount of financial assistance you require for your business to run.
Depending on the business type, your business plan can be as simple or detailed as needed to give a potential lender an overview of the business
Business financial information
You’ll need your profit & loss statements, business assets information, annual revenue, accounts receivable and cash accounts.
Your business’ finances inform lenders about the profitability of your business and how well you’ll be able to repay the loan. Businesses that tend to operate at a loss are less desirable applicants.
Personal financial information
You’ll also be required to provide your personal financial information such as bank statements and information about any current debts you have. Credit cards, auto loans, student loans, etc. will inform lenders about your debt to income ratio and your ability to pay back your loan.
Step 6: Submit Your Loan Application
All your hard work has led you to the final step–applying for your loan. After you’ve identified the type of loan you need, the best lender for your needs and gathered all the information they may ask for.
The lender might ask for additional information so be prepared to submit supplemental paperwork.
Also, be prepared to wait. It may take up to 30 days for a lender to decide to give you a loan or deny you. Apply before you need the money, but when you’re sure you’ll qualify for the loan.
Getting a Business Loan Made Easy
Getting a business loan can help take your business to the next level. But sometimes you need a little help finding the right loan for your business. Our lending specialists can help find the best financial solution for you and your business.
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