5 Steps to Getting a Small Business Loan
Getting a small business loan isn’t always easy for new entrepreneurs and investors. There are a lot of options, and lenders tend to reject quickly if you accidentally apply for a loan that doesn’t fit your purpose. This can be frustrating. Luckily, approval is not hard to get when you have the right loan type and you know your finances are stable enough to qualify for the loan. Here’s how to make that happen.
1. Decide on a Loan Type
Working capital loans are very different from the ones used to purchase assets. Even then, there is a wide range of options, with loans designed for short and long-term funding to suit the goals of different investors. A loan designed to help you rehab and refinance property is not going to be helpful when you’re looking for capital so you can order inventory, for example. Not only does good research help you get approved, but it also helps you make sure the capital is as affordable as possible.
2. Research and Compare Available Lenders
Once you know what kind of loan you need, go ahead and see who is offering that loan structure to companies like yours. Some lenders do not work with small companies, some focus on small business loan programs, and some include a wide range of options for businesses at any stage of development. Prices and conditions for approval vary a lot, so read up on all the program details before deciding which lenders to work with.
3. Examine Your Finances
You can actually pre-qualify yourself for a loan if you are diligent in your examination of your finances and you work with a lender whose fees and approval process are both transparent. The required minimum credit score is often included in the documentation for the loan, as is the general requirement for income and cash reserve levels. If you look, you’ll know whether you can get a small business loan.
4. Gather Your Documents
You’ll need to show proof of your income, cash reserves, and assets. Typically this is done by writing a fully detailed business plan that also outlines financial projections and major players in your company to persuade lenders of your goals and financial stability. You’ll also need bank statements and invoices as documentary evidence.
5. Complete the Application Package
Applications tend to be the easy part but make sure your research phase includes a detailed examination of what each lender wants out of a business plan. The most effective applications have plans that are custom written for each lender, appealing to the criteria they stress as most critical, rather than attempting to write a one-size-fits-all plan.