A business loan allows you the funds you need to expand operations, cover expenses, and purchase equipment or inventory. It can be crucial to the health of your small business. This guide will walk you through what you need to do to successfully secure a business loan that works for you.
Understand Your Financing Needs
This will help you choose the correct kind of loan for your business. For instance, an equipment loan is designed to help you purchase business equipment or office furniture. Your lender can simply repossess these if you default on the loan. A microloan allows you to borrow up to $50,000. A working capital loan helps pay for day-to-day operations and rent and may help cover temporary cash flow problems.
Weigh Your Eligibility
Lenders want to know if you’re good for the money, so they usually check your credit score and investigate what collateral or personal guarantees you have. They also check the time you’ve been in business and are partial to small businesses that have been around for a year or more. Finally, they check your annual sales. Considering all these factors before you apply for your loan will help avoid surprises and help you secure the loan.
Understand Your Lending Options
Common lenders include online lenders, traditional banks, and microlenders. Online lenders have less stringent requirements but higher interest rates. They’re suitable if you have poor credit. Traditional banks offer lower interest rates for qualified applicants but have stringent eligibility criteria and long wait times for funds. Microlenders are typically not-for-profit organizations with less stringent requirements.
Have All Your Documentation Ready and Organized
These include personal and business tax returns, business licenses, the building lease, and financial statements.
Submit Your Application
This is the final and most important stage in securing a loan. You can do this online or in person. A typical application has fields for your name, business name, Social Security Number, desired loan amount, and loan purpose. Once you’ve applied, wait for approval. If your loan is approved, most lenders may ask you to sign a loan agreement before they extend a line of credit or release funds for your small business.
