Every business requires an investment to either initiate, grow, or expand it regardless of its level (small or large). Especially 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, help in the recruitment process, and much more.
However, the process of loan-taking for small businesses can get a bit complicated for first-timers. It requires some extra effort and may induce anxiety for some people. Several questions can pop up while taking a loan. Therefore, some prior knowledge regarding the loan-taking process will increase the chances of acquiring a loan. Mentioned below are five key steps to assist in getting a small business loan.
Determine whether you qualify for a business loan or not
Before applying for a loan, it is necessary to evaluate if the business qualifies for a loan or not. A credit score of the company plays a vital role in the industry for the loan. Different lenders require different credit scores. Therefore, it is essential to calculate them beforehand. If the credit score falls below the threshold, the loan is likely to be declined.
Importantly, lenders need assurance for being paid back in time, therefore, the demand for information regarding early revenue of the business. So, it is necessary to evaluate the business revenue to calculate if a loan can be paid back or not. In addition to this, having collateral is also important for a secured loan. In some cases, lenders make it necessary to have collateral. Even though it is a risky step, it may reduce the interest rates, allowing to lend more significant sums.
Furthermore, the period a particular business has been in the market also contributes to qualifying. Online lenders and banks require one and two years of business, respectively.
Research potential lenders
Numerous lenders are willing to lend to small businesses, and you can discover many of these through online platforms. One can choose any lender after research that may seem suitable and appropriate for their business. Some of the main lenders are listed below:
- Direct online lenders: Various lenders have made the lending process relatively smooth through easy online methods. It 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 on a single platform.
- Commercial banks: For the small business market, large commercial banks act as the traditional lenders. However, the loan-taking process tends to be relatively slower due to the time-consuming and challenging underwriting criteria.
- Local community bank: Several community banks tend and aim to make a business loan to local businesses in the region.
- Peer-to-peer lending sites: Many sites act as an agent between the lender and individual. These lenders are known to make relatively quick decisions.
Figure out the purpose and amount of the loan
An essential step before acquiring a loan is to figure out precisely the purpose of the loan application. For a small business, a loan can be either for initiating the business, 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 vital to calculate the exact amount of loan required since money ranges do not work when taking a loan. Listing the works and their costs appears to be helpful for such purposes.
Compile the required documents
For an accessible, smooth, and hassle-free experience, it would be helpful to gather all the required documents before starting the actual process of a loan application. 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 document 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 together, and an appropriate lender is selected. Finally, the business owner is all set to apply for a small business loan.
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