Numerous financial institutions, including banks, are always willing to finance small businesses.
And though there’re dozens of lenders competing for your attention, most small business owners don’t know where to start.
Even if you managed to narrow to a specific lender, it’s still challenging knowing how to proceed from there, especially if it’s your first application.
Now, if you’ve been wondering how to get a business loan for your small business, we shall outline the ten key steps that you ought to follow.
Understand the Different Types of Loans
Finding a suitable loan for your small business is easier if you understand the funding options you have at your disposal.
According to America’s Debt Help Organization, there’re multiple types of loan available for small businesses, with the term loans being the most common option.
However, the choice of your small business loan will ultimately depend on the purpose of your loan and the available financing options.
Research on the Available Lenders
The next step is exploring the available lenders in your industry.
Here, you’ve plenty of options ranging from banks, online lenders, crowdfunding to peer-to-peer lending sites.
Ideally, however, you should find a lender with experience originating business loans to small businesses in your industry as they understand the nuances of your small business. The good news is, there tons of platforms to zero down to such lenders, and at Fin Impact, they mentioned a few small business lenders here.
Determine your Eligibility
Once you’ve narrowed to a specific financing option, the next step is to determine your eligibility.
Every lender has a unique set of parameters to determine whether you qualify for a small business loan.
In most cases, lenders will usually determine your eligibility based on several factors such as;
- Credit score
- Time in business
- Repayment ability
- Repayment processing
- Financial statement
Therefore, before making any step, carefully analyze the above factors, and see whether you can make any remedial actions.
Have Your Financial and Legal Documents Ready
Depending on the size of your loan, most lenders will require you to submit your statements. They will review your accounting records to determine whether you’re a suitable candidate for their loan.
It’s prudent that you ensure all your documents are complete, correct, and thorough.
It’s preferable that you consider an accountant ascertaining your documents to verify all the contents.
Again, it would be a bonus if you presented documents that are already audited by a certified public accountant.
Create a Solid Business Plan
According to BDC, having a detailed business plan is the first step towards securing a loan.
A detailed business plan clearly displays the roadmap you’re going to follow to achieve success.
From the lender’s perspective, having a solid business plan indicates that you’re focused, consequently translating to a higher probability you’ll receive a funding option.
Determine the Loan Amount
The lender will be interested in the loan amount you require.
Also, they will need to know how the funding will be used.
Are you going to use the funding for expenditure, hiring, expansion, research, or expansion?
In a nutshell, you should have detailed documentation of how much you need, and how each dime is going to be used in the growth of your business.
The primary concern with any lender is your ability to repay your loan.
Typically, collateral accepted by lenders includes company equipment, accounts receivable, and property.
Having such kind of collateral will increase the probability of receiving a loan and fair interest rates.
An alternative to collateral is having a personal guarantor.
Analyzing the Specifics of the Loan
Before you commit to a loan, you should analyze its specifications.
Close examine the fine details of the loan to determine what is in for you.
Some of the details to pay close attention to include: the repayment terms, interest rates, repayment schedule, charges, commission, fees, and penalties.
Complete Your Application
By now, you’ve collated all the necessary documents and made the remedial action to increase the probability of securing a loan.
If you’ve followed the above process, your loan application will not be difficult at all.
Borrowers who come on the table with all the necessary documents usually have an easy time securing their loans.
Wait/ Re-evaluate your Options
Finally, a call will come from the lender, and hopefully, it will inform you that you’ve secured a loan.
However, not all applications pass the litmus test, and if you did not secure a loan, you need to re-evaluate your business and application.
Here, you might even consider looking for alternative options altogether.
Remember that money is not always the solution to your small business woes.