The money you require to increase operations, pay for ongoing costs, and buy inventory or equipment can be obtained through a business loan. If you've never applied for a business loan, you may be unclear about where to start or which documents are needed.
Here is a basic checklist on how to get a business loan.
- Determine Your Need for Financing
There are numerous varieties of small company loans. Choosing the appropriate type of loan will help determine why you require finance. Here are a few typical situations:
- Purchase New Machinery - Some lenders provide loans for machinery. This kind of loan is intended to assist you in buying office supplies or other pieces of machinery for your firm. The equipment is collateral for the loan, so if you are unable to make payments, the lender may seize the equipment.
- Build A Business - Finding a lender who will give you a startup loan for a new business might be challenging because most of them have a minimum time in business requirements. You might need to apply for a microloan or a business credit card if you're just getting started. Since acceptance is determined by your personal credit score, you could find it simpler to apply for a business credit card than for other types of business loans.
- Pay For Ongoing Expenses - You may be able to address short-term cash flow issues by taking out a working capital loan, which is a short-term loan used to pay for everyday needs like rent and wages.
- Determine Your Eligibility
Here are four factors that lenders will probably take into account when examining your small company loan application.
Take note, however, that every lender has their own qualifications or requirements.
- Credit Score - Lenders will look at both your personal and business credit scores when you apply for a business loan. They help the lender in determining how likely it is that you will pay back the loan. Generally speaking, the better your credit score, the better your chances of getting a loan approved and a cheap interest rate.
- Collateral - Some lenders might require that you put up collateral or something of value that they can get back if you default on the loan. Collateral might include merchandise or equipment. Some lenders may also want a personal guarantee, which entails using personal assets like savings, property, or other priceless items to guarantee the loan.
- Length Of Business - While an online lender might only require a year of operation, a traditional bank typically demands that a company has been running for at least two years. However, do not give up if you have been running your company for less than a year. Some online lenders might accept candidates with a six-month business history if they are suitable.
- Annual Earnings - Another important component is your overall annual revenue or sales. Before applying, find out the conditions from a lender and assess your company's financial position to see if you meet them.
- Business Lending Options Comparison
You may locate small company loans in several locations. The top three lending categories are listed below:
Online Lenders
Online lenders provide small company owners with a range of loan solutions, such as term loans, merchant cash advances, lines of credit, and microloans. Online lenders had greater approval rates for loans than conventional banks did.
However, one major drawback of getting a business loan from an online lender is that they charge higher than conventional loan providers, such as a bank.
Conventional Lenders
Similar business loans are offered by traditional banks and online lenders. The biggest benefit of requesting a small business loan from a bank as opposed to an online lender or microlender is that banks often provide lower rates for suitable applicants.
One drawback, however, is that banks are more strict with their requirements.
Microlenders
Smaller loans usually referred to as microloans or microcredit, are available to assist underprivileged business owners in obtaining capital to launch or grow their enterprises.
- Obtain The Necessary Paperwork
Once you find the right lender, the next step is to collect the necessary documentation. A lender will usually request the following things:
- Business plan
- Business licenses
- Personal and business tax returns
- Financial statements
- Building lease
- Articles of incorporation
If you’re not certain about the required documents, you may call the lender before taking the application.
- Start The Application
Your small business financing application must be submitted as the last step. You can either do this online or in person, depending on the lender you've chosen to work with.
You must wait for a decision on approval after submitting your application. Lenders who approve your loan will offer you a loan agreement to sign before giving your money or a line of credit that you can use as you need it.
To learn about business loans or start your application, you may call +1300 811 463 or message us.