The process of loan application can be exciting and intimidating at the same time. While on one hand you are excited by the prospect of acquiring financing and boosting your business, on the other hand, you feel intimidated by the event of filing an application in the wrong way and getting rejected. This double feeling encompass one thing; loan financing is a necessity for the survival of most small businesses. These loans can come from different sources such as credit unions, online lenders, or commercial banks. Whether your business is a start up or an established company, the loan application procedures remain the same. The following 4 points will summarize all the core steps to make before applying for a small business loan and improve the chances of approval.
- Decide on The Loan Purpose and Amount.
There is nothing like having a clear head on the amount of financing you want and how you are going to use it. First, decide on the why you want the money. As obvious as it sounds, it is still the foundation of this whole process. Do you want it to pay salaries and expense? Or do you want to boost your marketing? Formulate such questions and come up with a clear answer for each. From there, decide on the amount you require to sort out those business needs you have identified. It starts to get technical from here as you have to get a clear estimate figure. Do not underestimate or overestimate the figures as it might come to “haunt” you down the process. To avoid this, take your time, don’t rush and come up with viable reasons for the loan and a well though amount. This way, the next steps will become much easier to conceptualize and plan.
- Analyze Your Eligibility
All lenders have different requirements before financing a project, however there are eligibility patterns that remain the same. Among them is the owner experience and time in business. It is obvious that established entities are more likely to be funded than the upcoming ones. This however does not mean doom for the small ones, as the owners can still prove their experience in running similar businesses.
Credit history is another eligibility criterion all lenders abide by. In this case, get your credit report and compare your score to the lenders demands. In fact, over 70% of lenders have pointed out that their approval or rejection decisions are partially influenced by the credit score. So, make sure to check your credit score , and if you have anything above 680 , then your bank loan approval chances are higher. Anyone with less than that can still apply but is more likely to get approved by an alternative lending institution for small business loan. Other than your time in business and credit history, your eligibility also relies on the collaterals you have. The more you have the higher the chances of getting the financing from commercial banks. This however does not apply in the alternative lenders as most require personal guarantees.
- Prepare the Necessary Documents
This is where the paper works start, by preparing all the business documents that proves your case and business. Prepare a detailed business plan that proves a gap in your market and how the business will close that gap. This proves your unique idea that can solve a large scale problem. In the same file of documents, attach all the financial documents if the business already exist(not a startup). Such documents include but not limited to statement of financial position, cash flow sheets, and debt/equity ratio. Having such numbers proves you have a serious business model backed by financial facts. It is also important to show other regulatory documents such as tax return reports, license , personal and business tax identifications. All this to prove your business exist within the regulatory framework.
4 Choose a lender and Make an Application
Your decision as the lender should be influenced by credit history, time in business, and the business financial numbers. You should also check out the repayment terms, interest rates, and period of repayment. The short cut to this would be to check and investigate on the loan amount and terms in your industry. This way, you will have a clear idea on the amount and lending institutions to approach to make an application. Loan processing will normally take between 2 to 3 months with several interview in-between, but makes sure to check your status after 2 to 3 weeks.