What Do I Need To Do To Get A Business Loan?
A small business loan can be the perfect solution for those looking for capital. It can provide the possibility to ensure equipment purchases, relocate, expand, buy inventory, or capitalize on a business opportunity. Whatever the reason to go into debt for your business, if you’re ready to take the leap, the next step is to apply for a business loan.
How Does a Business Loan Work?
There are two primary types of loans—a revolving line of credit and an installment loan. These are the most common business loans available. Both work under the same guidelines—you receive money and pay the loan back with interest.
These two types of loans are available in various forms, such as a revolving line of credit that can be executed by credit card or checks. The borrower can tap into the available credit whenever it’s needed. Then, pay it back in one lump sum or by making a payment of at least the required minimum.
Installment loans, also known as term loans, require a monthly payment that is most often a set rate.
A business with excellent credit will often have a choice of financing, while a company with a good to fair rating will have to take what the institution offers.
Before approaching a lender, there are a few steps you’ll need to take.
What Do I Need To Do To Get A Business Loan?
How To Prepare For A Business Loan
Before heading off to a financial institution, there are six things you’ll need to know and present.
1. You must know your personal credit history, especially if you haven’t established a solid credit history for your business. If your credit score isn’t satisfactory or if you have outstanding judgments or tax liens, wait until you’ve cleared them and raise your score. It is critical to safeguard and maintain good long-term credit health.
2. Some lenders will want to see both personal and business income tax records. Expect to produce at least three years of business tax records and the previous year’s private records.
3. Your personal savings and checking accounts may be scrutinized to determine how you handle finances. You should expect to turn over at least 12 months of records. Some lenders might require more, some less, and some none at all. Gather them in an orderly fashion and be prepared to submit them. Even if your lender doesn’t ask to see them, an underwriter might, especially if you applied for a government-backed loan.
4. Be prepared to show the length of time you’ve been in business. The chances of loan approval go up with each year. Unless you’re a Start-Up, you will likely need to show you’ve been in business for at least three years.
5. Some lenders will require collateral, and you’ll need something tangible to secure the loan. A guarantee should be something that won’t cause your business to fold if you default on the loan.
6. Write a solid business plan, and this isn’t something that can be thrown together in a day or even a week. Your business plan should be detailed and convincing. Unless you have experience writing a business plan, it’s best to attend a workshop or purchase a course. Business incubators and other small business organizations often host workshops for those interested in learning how to write a professional business plan and an executive summary.
What Do I Need To Do To Get A Business Loan?
Where To Apply
Once you’ve gathered everything together and checked your credit history, it’s time to decide where to go for your small business loan.
You might be tempted to apply to a large bank with enticing advertisements that lure you in and promise you a loan at reasonable rates.
While a large financial institution can offer you excellent loans at a reasonable interest rate, don’t overlook your smaller local bank or credit union.
Credit unions often offer loans at competitive rates, and because they’re local, the criteria for approval can be less than with a conventional bank. Credit unions will sometimes offer their members low-interest rate loans that are lower than traditional financial institutions.
Smaller local banks are also business-friendly and offer variable options for small businesses to obtain capital.
Before you apply for a business loan, be sure you know the exact amount you’ll need for your intended purpose. Know what the interest rate is and the terms of repayment. With good credit and a solid business plan, a small business loan can provide you with the cash flow you need for your company.