Okay, so you have decided to apply for a loan for your small business; I must commend you on taking this huge responsibility towards ensuring your business succeeds. But I must warn you, applying for a loan is not a child’s play and will not come easy even to the seasoned businessmen; and my guess is that is why you are here to look for steps to take, the dos and don’ts.
Well do not worry, you can ask around about me (chuckles) I give the best on how-to topics and how to apply for small business loans is not an exception.
Let me let you in on the values loaded in this article; a refresher on small business loans and lenders, how to apply for these loans in 10 easy steps, and the dos and don’ts of a loan application.
Now, these may be what you get at other places, the reason why this article is the best fit for you is that if you follow what is in this post and you act on it, you will get selected for the loan.
I want your business to succeed that is why I wrote this, and I know you want your business to succeed and that is why you will read this article to the end. Isn’t that why you are here?
Intro on Loans
A loan is the lending of money by either an individual or businesses to another individual or businesses in which the borrower pays interest on the principal till repayment is complete.
A legal contract binds both party and the document could either be online or offline depending on the source of the loans. A business loan is specifically for business purposes.
Applying for loans requires a lot of paper works; to the extent, you can get confused. Who wouldn’t get confused? You are overseeing a struggling business that requires a cash influx to stay afloat, the last thing you would be able to sort is some paper from your cabins.
Unfortunately, these are papers you need to get and sort and I am going to show you what papers to get, how to sort them; that by the time you submit your application, you will be waiting for a credit alert from your bank.
HOW TO APPLY FOR A SMALL BUSINESS LOAN IN 10 EASY STEPS
STEP 1: Where do you see yourself in 5 years?
You will be wondering if you are in an interview to get this kind of question. Yes, you are. Your lender will ask and you must provide an answer before they ask the question. Your business plan will tell your lenders where your company will be in 5 years.
No lender wants to lend money to a business that will not be there tomorrow as the security of their principal and interest is the sole reason they are there to attend to you.
Get your business plan on print, let it be as explicit as possible with an emphasis on cash flow and generation.
Your business plan should also answer other questions that your lenders would be interested in like:
- Why do you want to get the loan?
- What do you plan to achieve if you get it?
- How much do you need to accomplish this plan?
- What will you do with the money if you get it?
STEP 2: Ask for help
I am sure you know about your business very well, I am also sure you do not know as much about loans and loan applications and that is why you must ask experts on how to and what to do; and guess what, it is completely free.
What is more fortunate than someone willing to lend you money and they are also willing to teach you how to borrow money from them. All odds are on your side and they are free. So do contact these lenders for their expert advice on the loans you are about to take.
Small business administration loans (SBA) renders this service free of charge for loans within their bracket.
The second step on how to apply for small business loans in 10 easy steps is to get help.
STEP 3: Find and fill your financial loopholes
You may be wondering what this is, but the reality is that the finances of a struggling business and the owner will always be in a mess.
Short fix here, quick fix there, and before you know, your credit score is already in shambles. You want to know the state of your financial health before you get in front of a lender, so audit both your personal and business account.
Get your credit score; find your outstanding loans, your asset, and your company asset.
Most importantly, you need to separate your business from your account. You will realize the things that need fixing in your account and probably work towards them especially your credit score.
Why credit score? A healthy score (above 670) shows good financial health and this will enable the lenders to grant your loans quickly at a low interest rate.
However, bad credit scores also get granted at times, just know that the amount you can get is smaller and the interest rate is way higher.
STEP 4 : Research your lenders
A stitch in time saves nine is that what comes to mind when I think about research. Knowing about your lenders will enable you to focus your energy on that particular lender that fits your bill.
Finding out available lenders will go a long way to improving your chances of getting a loan.
Some of the lenders include:
- Banks: they give out loans and they can be an option in your quest, though they have a strict policy and many do require collateral.
- Credit unions/ Cooperative societies: these associations give out loans from their savings, though they have a smaller pool compared to banks. They also do not employ the use of technology which slows the process of application and disbursement.
- SBA loans: this is a US regulatory body that doesn’t loan money but serves as an intermediary between lenders and borrowers. They have great loan options in 504 and microloans.
- Payroll protection program: the coming of Covid-19 crashed so many businesses revenue and to avoid massive workers lay off, the US government introduced this option in 2020 to help businesses that are struggling with paying rents and salaries. You can check if this option works for you.
- Invoice financing or factoring: this involves using your outstanding invoices to obtain loans from lenders. What I am saying is if one company owes your company money for either good bought or services rendered; you can borrow money with their promissory note and repay your lenders when your debtors pay you.
STEP 5: Prepare your application portfolio
This step is a mop-up of the steps above, putting everything above together by:
- Get your registration document and tax ID ready.
- Find out your credit score for your personal and business credit cards
- Prepare the following documents:
- Personal financial statements
- Personal information
- Statement of history
- Tax returns
- Business plan
- Financial projections
- Personal ID card
STEP 6: Collateral
Though some lenders do not require collateral, providing collateral options is a statement of intent to your lenders and will go a long way to persuading them to give you the loans.
Your corporate assets and at times personal assets (although not advisable; but once you put your hands on a paper on behalf of your company, you are also liable if your company defaults) should be documented.
STEP 7: How much do you need?
In all you do, you should know how much you need when applying for a loan. You should not be like: ‘if I see $10,000 I will take and if it is $20,000 I won’t mind because your lenders want intentional action takers.
How will you know the exact amount you need? By running an inventory on what your business needs the money for;
- Are you creating a new product? Get the cost implication
- Do you owe your staff? How much?
- Need new equipment? Get the price
Lenders will always grant you loans if your purpose is to generate more revenue because they know you can pay them back from that venture.
STEP 8: Dive in!
You can’t be over-prepared for a loan application and if you have followed the above steps to the letter, you are ready to apply for a loan, so let’s dive.
Schedule a visit to your offline lenders or visit the website of your online vendor to pitch your application.
Always negotiate with your lenders if you get an offer, negotiate the rate, period, and even amounts. Compare terms if you get more than one offer from your lenders.
STEP 9: The wait…
Different lenders have different times for loan applications during which they do their job of going through your documents and proposal.
Always put into consideration the time you have to get the loan as this will determine the lenders you choose.
Urgent need of loans will move you towards online lenders who have short processing time while you may have to visit a bank if the loans you need are huge.
If you receive more than one offer from lenders; which is very possible if you follow these steps, the last step is to compare lenders rate, period, the penalty fee, administration cost.
Your business needs the loan, however, you should not be taking unnecessary burden if you have loan options to accept. Compare and accept the most favorable one.
FAQs on How to apply for small business loans in 10 easy steps
Figure out how much money you need
Decide what type of loan best fits your needs
Check your credit scores
Put together the required documents
Assess the value of your collateral
Shop around for the best business loan terms
Apply for a business loan
Build personal and business credit scores. Personal credit scores indicate your ability to repay personal debts, such as credit cards, car loans, and a mortgage
Know the lender’s minimum qualifications and requirements
Gather financial and legal documents
Develop a strong business plan
It is difficult to qualify for a small business loan with a credit score lower than 700. … To check your business credit score, contact Equifax, Experian, and Dun & Bradstreet. Additionally, you should build a strong personal credit score and drive down any debt before applying for a business loan
The entire SBA loan process generally takes about 60 to 90 days. Compared to other small business loans and alternative financing products, it can take a while to close on an SBA loan because of the high volume of paperwork and documentation that you need to provide
Accept my congratulations in advance on securing this very important loan for your business. You have done well and need a pat on your back for your diligence.
I was not bluffing when I said I know my onions when it comes to how to apply for small business loans in 10 easy steps.
It is now your turn to put these into use and I can visualize you getting 3 offers on your first application. Do you think that is an exaggeration? Why not APPLY and see…
- Thimble: Easy Steps To Get Small Business Loans
- Forbes: 10 key steps to getting a small business loan
- Fast capital: Applying for a business loan
- Ondeck: Online Applications Small Business Loans
- National business capital: How to get a small business loan in 5- steps