Getting a business loan opens the door to future growth. When your business lacks the cash flow to purchase new materials or hire enough employees to meet customer demands, it’s time to consider a loan.
You can apply for a business loan here to get the funding that you need.
If you don’t know how to get a business loan, you can follow the five simple steps below to get started.
1. Learn how banks assess you
A loan for a new business is more challenging to obtain than a loan for a well-established business due to a lack of credit history. Therefore, the first few things that a lender will want to know about you before approving your loan application are:
· Credit score. Your credit score is imperative because it’s a way to determine your creditworthiness. Lenders prefer an excellent credit score above 680 because it reduces their risk of non-payment. Small businesses that have a lower credit score will struggle to obtain any form of traditional lending.
· Length of time in business. Established business entities have a history. However, the lender will prefer that you’ve been in operation for a minimum of one year as an online lender and a two-year minimum for a traditional lender.
· Revenue. How much income do you bring into the business? Lenders often have a minimum amount of revenue that they require applicants to earn for loan approval. For example, lenders require revenue of $50,000 at a minimum per year.
· Reliability of payment. Are you going to make your payments or not? The lender will want to make sure that you’re earning high enough total income to cover expenses and repay the loan. Lenders often look for total income to be 1.25 times your business’s expenses.
If you don’t meet most of the requirements above, Lenders may ask for some form of collateral.
2. Decide what type of loan you need
Multiple types of loans are available for businesses, including:
· Startup financing, which is ideal for new businesses
· A business line of credit to help manage expenses
· SBA loan for equipment, vehicles or other costs
If you’re just starting your business, you’ll either need a lot of collateral or to rely on alternative forms of financing. Many of the world’s largest companies began with a loan from family and friends or by using credit cards.
Once you establish your business, a line of credit allows for a form of revolving credit that you can pay off and use, often depending on the way the credit line is structured.
Larger loans are available for businesses with credit history and good underlying financials.
3. Select a lender
You generally have three options when taking out a business loan: microlenders, online lenders, and banks. The right one for you will depend on your situation:
· Online lenders may be a good option if you need funding quickly, don’t have collateral, or need a streamlined solution. APRs are generally higher, but the approval process is quick and straightforward.
· Banks are a good option if you have excellent credit, you have an established business and have time to wait for the approval.
· Microlenders may be a good option if you have poor or no credit, you’re a newly established business or otherwise cannot secure a traditional loan.
Choosing a lender isn’t a decision to take lightly. Take your time to compare your options.
4. Gather your documentation
If you’re taking out a loan to start a business or expand your operations, you will need documents to prove your income and repayment ability.
Lenders may require the following documents:
· Your business’s financial statements
· Your tax returns
· Your business tax returns
· Bank statements for personal and business accounts
· A business plan
· Business legal documents, such as your franchise agreement or articles of incorporation
Having these documents on hand will make it easier and quicker to apply for your loan. Some lenders may have other document requirements, but the ones listed above are the most common.
5. Fill out the application
Once you’ve found a few lenders you’re interested in and gathered your documents, it’s time to fill out and submit your application.
With your list of loans that you qualify for in hand, choose the ones with the lowest APR. Then, go through the application process for each one, and make sure that you have all of your documents on hand.
Once you’ve submitted your applications, the only thing left to do is wait for a decision. Business loans generally have a longer review and approval time, so it’s essential to be patient during the approval process.