Do you need a loan to boost your business? Are you interested in seeking finances to bring your business to the limelight? If yes, there’s good news for you. Carefully review all the details below. This will help you know how best to approach a financial institution for money and how you can successfully get the loan without stress.
How to Get a Small Business Loan
Define your plan
If you are lending someone money, I am certain that you want to know what the person will use it for. That’s how lenders are too, they want a clear sense of how you intend to use the funds and how you will pay them back. Before applying for a business loan, have a plan on how you want to use it.
Be sure you know the following:
Know when you will need the money
Apply in advance of the time you will need money. It’s not when you need money this week, you will apply today. The whole process takes time, plan ahead of time. The application and approval process can take weeks or even months.
On the other hand, marketplace lenders have a shorter application and approval process. Funds may be delivered within days or weeks here. This is helpful if you need funds quickly to take advantage of a strategic opportunity.
On a normal, it is important to have a good relationship with any officer in the financial institution giving you the loan. Also, your overall relationship with a lender may last for many years. Does the lender have a track record of working with small businesses? Are they personally receptive to your needs? Are they able to answer your questions and clearly explain the terms of their financing up front? Don’t allow them to rush you into making any hasty decision.
Questions on How to Get a Small Business Loan
What is your purpose for seeking financing?
You must have a special reason and plan on why you are collecting the money. Also, you must be able to explain this in clear terms to the lender. This helps the lender know that you will use the funds judiciously.
How will the money earn you money?
This refers to how you intend to be getting turnover for the business so that you will earn more money and pay back the lender without stopping your business. It as well means how the funds will strengthen your business as well as your ability to repay.
How will you repay?
They will definitely ask you details that demonstrate your ability to repay a loan or line of credit. Your sales, monthly expenses and personal financial details are important here.
How to qualify for a small business loan
Please, carefully review a copy of your personal and business credit reports before you apply for a loan. Many lenders consider credit profiles from Experian®, Equifax®, and TransUnion® personal reports. Also, the first two bureaus maintain business reports. Business credit reports include details from vendors and suppliers that show a company’s payment history. Moreover, they add court filings and other public records that show whether a business has ever failed to repay a debt.
After reviewing your reports, make updates and correct any errors by contacting the reporting agency. You can improve your score by asking vendors or suppliers that aren’t listed to report your payments (some firms provide these details automatically, many others do not).
Always down existing debt and keep revolving balances low. This is because high balances hurt your score. When you have delinquent payments, you may not be approved for a loan.
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Gather financial documents
Each lender has a specific requirement when it comes to documentation. Banks usually demand business and personal tax returns.
They as well review balance sheets, income statements, cash flow projections, and other financial statements. He other hand, marketplace lenders have a more streamlined application process and less documentation. Always ask your lender which documents it needs to review.
Moreover, some loans require collateral. Many traditional banks and SBA loans ask for collateral that could be sold to repay the loan if the loan cannot be repaid with cash. Marketplace lenders, ask for a personal guarantee — a written promise of repayment from the business owner if the business does not pay.
Understand the cost of capital
Please take some time to review the total costs, interest, and fees of the loan. If you sit down to calculate this, you may end up paying through your nose. Consider factors like:
Late payment fees. This refers to the amount you will pay if you fail to pay at the given date. Origination fee. This is the activation fee for a loan. Sometimes, it is from around 0.5% to 7% based on the type of loan and the borrower’s creditworthiness.
Prepayment penalty. Certain lending contracts give a specific fee to be charged for paying ahead of schedule. However, some don’t.
When you calculate a loan’s annual percentage rate (APR), it will help you determine your total costs for financing. The APR includes the interest rate, origination fee, and other costs. Please consider them carefully before applying.
Additionally, it’s vital to understand what will follow after approval. Feel free to directly contact an adviser who’s knowledgeable about the details of your loan or credit line. Also, consider how ready you are to access information and documentation on your account. Take all these into consideration before applying.
A loan application can save your business today. But ensure that you are ready to use the funds wisely and pay them back. This will help you to easily get approval next time.
I hope you got value. Please keep your questions in the comments section.