Whether it’s for a brand-new business or an injection of capital to grow an existing company, getting a loan can be a daunting task. However, this doesn’t have to be the case if you’re meticulous in your planning and ensure you have the right information on hand.
Getting a business loan approved is all about research, strategy, and believing in your business.
An application for a business loan should never be rushed into. You need to research the different types of loans, and how much funding you’re likely to need, and what your reasons for taking out a loan are. It’s also important to analyze your business and your financial profile to help gauge the likelihood of receiving the loan you require.
Follow these simple steps and you’ll improve your chances of securing the funds you need to move forward:
1. Determine What Kind Of Loan You Need
There are many types of business loans and financing available from both traditional and non-traditional lenders. Your first step in starting the application process should always be to look at what loans are available and match those to your business requirements.
Applying for the correct funding will definitely improve your chances of success.
The most traditional starting point is going to a bank for a loan or line of credit. With the bank, you are likely to get a variety of options, from small loans to large, and varying repayment terms. It’s usually best to approach the bank you already have an account with, as they’ll look more favorably on your request. However, you will probably have to meet very rigid criteria to get approval.
Depending on how much you require and your personal circumstances (your credit score and collateral), you can look to companies that offer microloans, government-run programs, small business funding specialists, or online loans. Many of these companies don’t have as strict requirements as banks, or they assist with applications as they support entrepreneurs and small businesses. However, it’s important to do your homework, as not all lenders have the same level of legitimacy.
Types of loans include microloans or larger sums, cash flow loans, vendor financing, and credit cards or lines of credit. The length of the repayment term and the interest will vary depending on:
- How established your business is
- Your business and personal credit score
- The type of loan you choose
- The amount you require
2. Decide Who To Apply To
It’s important to make a short list of the institutions or companies you want to approach. Take some time to research them. Then, put together a list of all the information you’ll need to provide to give your application the best chance of success.
At this point, you can also decide if you’re going with a direct lender, or if you want to use an online marketplace to compare and contact lenders.
Don’t be afraid to have a list of various lending institutions and companies, and to apply to all of them. It’s in your best interest to check what kind of deal you’re being offered and to compare quotes on repayment schedules and interest rates before committing to one loan.
You may not get the first loan that you apply for, and having options gives you a better chance of success.
3. Gather Your Paperwork
Now that you have your short list, it’s time to get your application ready.
Most lenders will have a specific list of documentation that they require. Be sure that the paperwork that you have matches that list, even down to the naming conventions you use for each document.
Most institutions will have a form that they require to be completed, either online or in hard copy. They’ll also need certain documents that show whether or not you’ll be a worthwhile candidate for a loan.
The documentation required usually includes a full business plan (especially for a startup), details about yourself and upper management for the company (including work history), and a balance sheet or financial statement to show income, assets and liabilities.
If your company is brand new and you don’t have a financial statement, you can provide a sales forecast that’s backed by solid market research. If you know how to make an invoice, you can include this too to highlight your billing process and how you’ll calculate sales.
To ensure your paperwork is in order, use this checklist when applying:
- Business and personal bank statements
- Business and personal tax returns
- Profit and loss statements and balance sheets
- Collateral documents
- Personal financial statement
- Government-issued ID and business registration
- Business plan and financial projections
4. Check Your Credit Score And Report
One of the most important elements to any loan application, especially if you were going with a more traditional lender, is your credit score and your credit report. This is both your personal score and report, and the one for your business.
Lending institutions will look at both you as an individual and the company for which the loan is required to assess the risk, especially in view of rising interest rates.
Banks and other lending institutions will pull your credit score for you, and less traditional companies will also be able to request this information once you put in an application. However, it’s in your best interests to know this information before you make your application. This will allow you to identify which companies or institutions are more likely to give you a loan and help you anticipate queries from lenders.
You can also see if there is any incorrect information on the report that could impact your credit score, and look into getting that fixed. Additionally, it’s possible to work on improving your credit score before you get to the application process for a business loan. This will improve how lenders see you.
Applying for a business loan can be a simple process, but only if you’re properly prepared. Having the right knowledge, all the relevant documentation, and a good credit score will make you a more attractive proposition to lenders. If you follow these guidelines, you’ll be better equipped for success.