No more wasting time applying with several banks to get approval for your loan request but to find out you were declined for an unspecific reason. Our Marketplace bank partners will reach out to you as the borrower once your file has been approved by our internal underwriting team. That means banks will be competing for your loan will you sit back and compare loan offers by bank partners.
Many people have great business plans but worry about getting the funding to get started.While credit, in general, has tightened since the great recession there are still many loans that are available for small business owners.It takes a bit of research sometimes, but as long as you take the time to look into your options and prepare your information you should be able to find a fit for you.The process can take a little while, so it’s better to get started sooner rather than later.Below are some steps for expanding or starting your business and getting help to finance it.
1. Explore your options
It is a good idea to explore if you can get a loan before you go through all the hoops of applying for one.The Small Business Development Centers run by the SBA offer free advice to business owners on how to present their plans and help them assess if they are in an excellent position to get a loan.Try also talking with your financial advisor and accountant if you have one to go over recommendations for expanding or opening your business and looking at what type of business loan you need.
2. Create a business plan and gather financial documents
If you have run a business in the past or your company has opened already, then that can be helpful information that assists you with getting a loan.If you’ve never run a business or yours hasn’t opened yet it can be a bit more challenging.If your company has opened, then you should assemble documents on your cash flow to demonstrate how your business is earning money and where it is coming and going out.Make sure you prepare a well thought out business plan that reflects your understanding of the process.This should be a concise document that shows your financial projections and a detailed strategy for your businesses success.The key is you need strong documentation, without detailed information, your answer on your loan application will be a no.
3. Look into a Community Bank for your loan
One option to consider is to look into Community Banks for a business loan.The loan officers in community banks have more decision-making power.Large banks are tied into algorithms for their decisions and have less flexibility.Search for a bank that promotes their desire to work with small business customers.Consider if their website and their marketing material target small business customers.If a significant portion of their customer base is a small business, then the bank is an excellent choice to explore applying for a loan.
4. Make sure you have your finances in good standing
Banks will look at a poor personal credit history as a problem when you are looking into a business loan.They are taking a chance on you, so they want to make sure you are someone that has a robust financial foundation personally.The first step is to get a copy of your credit report.Review your report and dispute any negative information that is incorrect.Work on paying off any outstanding loans or credit cards.If you don’t have enough credit history, you should get a credit card and use it monthly and then pay the bill every month.You can work on improving your credit score by using less of your approved credit, paying your bills on time and not having any inquiries on your credit for a few months.
5. Look into a line of credit
When you get a business loan, you get the whole amount at once.The loan is used for your stated goal of expanding or opening your business.Once you receive the loan, you will pay it back over a period from your profits of your business.If you have a line of credit, you can use it in the way you might use a credit card, when you need the loan you use it.If you need materials but will have the cash after you finish the job, you can tap into your line of credit.Then you can pay back what you borrowed when the money comes in.A range of credit is better for the day to day running of your business.
6. Don’t wait until the last minute
If you wait until you are short on cash, you are going to have more difficult time getting money from the bank for a loan.The bank has to feel your business is going to succeed to lend to you. If you are at risk for going out of business, they won’t be able to take that gamble.If you can project your upcoming cash crunch’s that are part of your business flow and explain that to the bank, then they will be more likely to give you credit.Many businesses which are profitable fail because of cash flow issues. Don’t let that happen to you, plan ahead!
Small businesses carry great importance in building the economy of a country. This is because small businesses introduce growth and innovation as well as create jobs in the country. A small business includes any business that has employees that are equal to or less than five hundred in number. This definition has been set by the U.S Small Business Administration (SBA). Some of the small businesses turn into large corporations in the future and hence are seen as carrying considerable potential. Like every other business, small businesses might also find themselves in a situation where they require financial assistance. This could be due to problems faced at the beginning of setting up the business or while running the business. So, you consider taking help from the outside in the form of a small business loan. In this article, we discuss the different steps that you should take before applying for a small business loan.
Before Applying For A Small Business Loan You Must…
1. Answer the Most Important Question
The first step of getting a small business loan is first to make it clear to yourself why you are applying for it. The answer to this cannot be as simple as ‘because I need money.’ As a lender, it is essential to understand exactly why they are giving out credit to someone. If you cannot convince the lender why you need the loan, you will not be able to get it.
Hence, before explaining it to the lender, it is a good idea to ask yourself why you need the money. Is it because you want to start your business?Is it because you would like to expand your already existing business? Whatever the reason is, make sure you are fully aware of it and believe in its success.
2. Know the Right Amount
Along with knowing the reason why you are opting to take out a small business loan it is also important to know what amount you will require fulfilling your purpose. Along with knowing the amount it is also important to figure out the urgency of the loan. If you need the money quick, it is probably not recommended to use the help of banks.
Know the right amount - the more you seek, the more likely you will be rejected.
3. Figure Out When and How You Can Repay the Loan
Be realistic about the way you will be repaying the loan. This needs to be done beforehand so that you can choose the repayment plan that is in line with your financial expectations. Do not overestimate your ability to pay back the loan as it could hurt you in the future. Make sure whatever repayment plan you have in mind, is practical and affordable to you.
4. Know What to Use as Collateral
Regardless of the kind of lender you end up with, it is natural for the lender to ask for some collateral when giving you a loan. This makes the lender feel secure and increases their confidence in you. Collateral doesn’t necessarily have to be in the form of an asset. It could be in the form of guarantees as well. Before starting the application process, it is wise to decide on the kind of collateral you will be provided to the lender to get the loan successfully. This is imperative because you might end up getting rejected if you do not have sufficient collateral.
Some of the lenders waive off the requirement of having to present collateral however this exposes you to a number of risks such as loss of your valuables or other items in case you fail to pay the lender. Do a thorough analysis of the assets that you have and then decide what collateral you can present to the lender. Good collateral increases the probability of you getting accepted for the loan.
5. Decide on the Type of Loan & the Lender
If you are opening up your business and need funds to initiate the business, it might be a good idea to consider a start-up loan. You can do more research online to find out which loan would be best suitable for your needs. Also, at every step, make sure you are eligible for whatever you are considering.For already existing businesses it is a good idea to consider a small business loan. For a small business loan, it is a good idea to make SBA Loans the first option that you consider.
This is because SBA Loans also have the option to opt for low-interest rates and repayment plans that are flexible. The other options that you have are micro lenders or online lenders. If you have a good credit history, can offer sufficient collateral and do not need the money immediately, you should consider going to the bank for your loan. On the other hand, if you do not have a lot of time on your hands and do not have sufficient collateral either, it is better to go with online lenders since they are known to be flexible.
6. Stay Informed
Once you have finalized the main elements of your decision such as the type of loan and lender, the next step is to consider many options in the same category. Check out the terms and conditions of the options that you are considering and the annual percentage rate. Again, make sure that the repayment plan sounds affordable and doable to you.
Discuss with the lender how flexible the terms are and what would be the repercussions if you fail to make a payment. Communicate all your concerns and worries and do not hesitate to ask questions. Every lender has their own set of rules and terms. Make sure you both are on the same page and discuss even the smallest of details regarding your case.
Lear the annual percentage rate (APR) of the loan.
Know what the fees will be, as well as any prepayment penalties.
7. Prepare the Paperwork
The application process for getting a small business loan could become lengthy if you do not know what to expect and which documents to prepare. So it is a good idea to make a list of all the documents that will be required by the lender and gather them beforehand. The lenders will require you to show several documents that could pertain to any nature such as financial or legal. Hence, to make the whole process as short as possible keep the necessary items ready.
8. Expect Rejection
Getting a loan can be tricky. By getting your hopes too high, you might invite yourself to disappointment. Understand that rejection is a part of the process, and one or two rejections do not necessarily reflect your inability to acquire a loan. Whenever you are rejected by a particular lender make sure you find out what your case was lacking and make a stronger case in front of the next lender. By doing this, rejection will serve to be a learning process that you can use to acquire the loan you need.
If you are looking to acquire a small business loan, make sure you incorporate all these tips to prepare yourself better for the process of getting a loan.