Did you know? That only 1 out of 5 businesses gets their loan approved when applied with a bank. We can’t deny that a business loan for your startup or a C corporation can help grow and establish well in the marketplace. This step can sound very much intimidating to you with all the consolidating lending standards and complex processes. Well, if your question is subject to the statement, “How to apply for a small business loan?” definitely, you can simplify the whole process with our quick step-to-step guide. So, let’s get into it!
DETERMINE YOUR ELIGIBILITY FIRST
Getting answers to the below-mentioned questions can ease out the process more. Take a look.
How long have you been in this specific business?
The first thing that most private lenders will consider is checking how long you have been in these business operations. Normally, your business needs a duration of two years or so to qualify for this step, especially if you own a small business.
What’s your current credit score?
Like every year, each operating credit card and other forms have the privilege to check their credit score. Just make the most of your annual credit report, which you can usually get from TransUnion, Experian, and Equifax. Bear in mind that money lenders offer low rates to borrowers with good credit scores. Let’s say your credit score needs to be above 650 to be entitled.
Do you make enough to make repayments?
Lastly comes the factor in evaluating how much you can afford to repay every month. Monitor your business financial portfolio carefully, especially the routine cash flow. The mantra that lenders consider for timely repayment is that the business owner’s total income should be 125 times more than the total expense.
CHOOSING A SUITABLE LOAN PLAN
Private lenders will ask you why you need that small business administration loan. Your answer may normally fall into three different categories. And, these factors will only determine which loan type is the most right for you.
- Expanding your business can be the foremost cause. Considering a government-backed traditional loan is the one that allows you to borrow higher figures. Generally, it reaches $5.5 million for a business’s growing needs.
- Secondly, when one needs to set up a business. Well, lenders usually don’t support loans to organizations in their first year. Typically, lenders demand to see regular cash flow to rely on. Instead, you are left with the only choice to go with personal loans or business credit cards.
- Third but not least, a business line of credit makes sense to most business owners. This flexible funding model allows you to tap into small business funding options to cover daily expenses, unexpected repair costs, and payrolls.
- COMPARE THE LENDER OPTIONS
Still, confused? Let’s just put it in simple words for you. There are three main sources for applying and getting a small business loan approved – Banks, private lenders, and non-profit microcredit companies. Each one of them has a series of different products. However, one may be better in certain aspects than the other. Compare them carefully with this quick breakdown.
If you have been in business for more than two years and you have a good credit score. Banks can provide you loan amounts up to $5 million. Bear in mind that banks don’t provide fast cash; their traditional process takes upto two or three months in total.
While online lenders can make it from $10,000 to $5 million, this option is highly suitable if you lack time in business and collateral assets. And when you need the funding in the shortest time possible.
On the other hand, the microlenders typically lend amounts less than $50,000. Without any doubt, the APR of their loan amount is much higher than the banks.
- TIME TO GATHER DOCUMENTATION
The next step involves “How to apply for small business loans?” to prepare all the necessary documentation. Locating all the important paper files and having them readily available can streamline the complicated loan process. Rest, the combination of papers that you need to submit merely depends on the lender type you choose. The most common documents to prepare yourself with are the business financial statements, legal agreements, personal tax returns, plan of action, and personal bank statements. So, get all of them ready now!
- TIME TO APPLY FOR THE LOAN
Last but not least, getting a small business administration loan comes into action. This is the right time to go for the application with the right lender option. One can simply begin by comparing three different options based on their APR and terms and conditions. Within a short period, you will get to know what loans you finally qualify for, compare the options, and choose the one that has the lowest annual percentage rate.
So, that was all that one can practice getting that small business funding option approved in 2021.