Every business requires an investment to initiate, grow, or expand, regardless of whether it is a large or small enterprise. In the case of small businesses, loans can play a significant role in supporting the commercial growth of a business idea, funding new research and development, providing aid in expansion into new territories, enhancing sales and marketing efforts, helping in the recruitment process, and much more.
However, the process of securing a small business loan can be complicated. This requires extra effort and may induce anxiety for some people. Several questions can pop up while applying for a loan. Therefore, prior knowledge regarding the loan process will increase the chances of approval. Below are five key steps to assist in securing a small business loan.
Determine Whether You Qualify
Before applying for a loan, it is necessary to evaluate whether the business qualifies for a loan. A business credit score is essential in making the business eligible for the loan. Different lenders require different credit scores; therefore, it is necessary to calculate them beforehand. If the credit score falls below the threshold, the loan will likely decline.
Importantly, lenders need assurance of being paid back in time, so there may be a need for information regarding the early revenue of the business. It is necessary to evaluate the business revenue and calculate whether a loan can be paid back. Additionally, having collateral is essential for a secured loan; some lenders make it necessary to have collateral. Even though it is risky, it may reduce the interest rates, allowing a lender to extend more significant sums.
Furthermore, the period a business has been in the market also contributes to eligibility. Online lenders and banks require one to two years of business, respectively.
Research Potential Lenders
Numerous lenders are willing to lend to small businesses; many of these can be easily discovered online. After research, one can choose any type of lender suitable and appropriate for their business. Some of the leading lenders are discussed below:
- Direct Online Lenders: Recently, various lenders have made the lending process relatively smooth through easy online processes. This includes many reputable companies such as PayPal that provide fast, small cash advances, working capital loans, and a certain amount of short-term loans. Moreover, many sites act as a lead generation service, where multiple lenders can access a single platform.
- Commercial Banks: Large commercial banks act as the traditional lenders for the small business market. However, due to the difficult and time-consuming loan underwriting criteria, the loan process tends to be relatively slow.
- Local Community Bank: Several community banks tend to make business loans to local businesses in the region.
- Peer-to-peer Lending Sites: Many sites act as agents between the lender and the individual. These lenders are known to make relatively quick decisions.
Determine the Purpose and Loan Amount
An essential step before acquiring a loan is to determine the purpose of the loan application. For a small business, a loan can be for initiating, managing daily expenses, or growing the pre-existing business. It is essential to mention the purpose of the loan to the lender for transparency as it increases the trust level with the lender.
Furthermore, it is crucial to calculate the exact amount of loan required since money ranges do not work when applying for a loan. Listing the requirements and their costs is helpful for such purposes.
Compile Required Documents
For an accessible, smooth, and hassle-free experience, gathering all the required documents is advised before starting the loan application process. Some standard documents required include a resume, business plan, business credit report, income tax returns, financial statements, license, registrations, contact details, and commercial lease. Any further additional documents may also be required, depending on the lender.
Apply for the Loan
Once the business is qualified for the loan, the purpose and amount of the loan are determined, all the relevant documents are gathered, and an appropriate lender is selected; the business owner is ready to apply for a small business loan.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
