Just starting your entrepreneurial career? Been in operation for more than 5 years? Whether you’re a seasoned business owner or just starting out, getting a business loan helps you fuel the growth of your company, cover daily expenses, and buy equipment or inventory.
Read this article to understand the steps for obtaining a business loan.
To get a business loan, follow these steps
1. Check Your Personal Credit Score
2. Check Your Business Credit Score (If Any)
3. Fix Whatever Issues There Are on Your Credit Reports
4. Establish Your Need For Financing
5. Work Out How You’re Going to Repay the Business Loan
6. Understand How Lenders Assess You
7. Determine What Type of Business Loan You Need
8. Gather Relevant Documents
9. Submit Your Application
10. Have a Backup Plan In Case The Lender Denies Your Application
Here we go!
1. Check Your Personal Credit Score
To get business funding, check your personal credit history and score before applying for a small business loan. You need a minimum credit score of 680 for bank or SBA loans. If your credit score is lower, you can still get a loan approval. You can get your credit report for free from each of the three major credit bureaus (Equifax, Experian and TransUnion). You might be able to acquire an accurate picture of your credit situation through bank and credit card company records (credit card statements, for example).
2. Check Your Business Credit Score (If Any)
To obtain a business loan, check your business credit score.
Check your business credit reports once you get them. Also, check your credit score. Typically, a score of 80 or higher indicates a good business credit score (on the D&B Paydex Score model, for example). Your business credit score is a good indicator of its financial stability. Having a high business credit score might make it easier for you to have access to more funding, lower interest rates, and better loan terms. By routinely checking your business credit score, you can obtain a sense of the state of your business and the possibility that you can receive an approval for a business loan.
3. Fix Whatever Issues There Are on Your Credit Reports
To get a business loan, fix whatever issues there are on your credit reports.
If you’re not diligent, inaccuracies on your credit report may occasionally have a negative impact on your credit score. Check both your personal and business credit reports regularly. If you find any mistakes, report them right away to credit reporting agency to fix it and raise your score by eliminating the errors. If your credit rating is low, a bank won’t approve business loans.
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4. Establish Your Need For Financing
To apply for a business loan, determine why you need funding.
Outlining your financial requirements will help you determine the size of business loan you require.. You can use a business loan to:
• Launch a business
• Expand
• Invest in equipment
• Build up your stock
• Boost your cash flow
Depending on the operational stage your firm is in, you need money for variety of things (e.g., startup). To choose the best loan amount for your business, make a list of the things you want to do with the money.
5. Work Out How You're Going to Repay the Business Loan
To apply for a business loan, work out how you’re going to repay the business loan. Be honest with yourself when estimating how much you can afford to pay each month. Take into account external elements like supply chain disruptions, seasonal slowdowns, and even social changes.
6. Understand How Lenders Assess You
To get business funding, understand how lenders assess you.
Take into account your credit history, collateral options, and a business line in order to qualify for a business loan. Check the terms and conditions of the business loan you want before applying.
However, when applying for a business loan, take into account the following:
Collateral
Your collateral can include assets such as real estate, equipment, inventory or cash. To ensure lenders get their money back, some lenders ask you to put up an asset as collateral. By lowering the lender’s risk, collateral can also help you get a better loan deal.
Industry
While the industry you work in may not seem important when applying for a business loan, lenders see some industries as riskier or more lucrative than others and will take this into account when assessing risk. You can deal with lenders who specialize in your industry even if your industry or background preclude you from qualifying for some typical business financing.
Time in Business
You are probably doing something right if your business is on a successful run. You may run a startup or a new business, but a strong, workable business strategy for achieving milestones goes a long way toward balancing the scales in the eyes of lenders.
>>>PRO TIPS: Business Loans: What to Know
7. Determine What Type of Business Loan You Need
To get a business loan, determine what type of business loan you need.
To generate capital for your business, a loan application is one of the most common ways to generate capital. However, you can find numerous types of business loans available on the market, but not all loans are suitable for all businesses.
Term Loan
When you take out a term loan, your lender gives you a lump sum of money, which you must pay back over a predetermined period. Ensure you repay interest accrued on the loan in addition to the principal loan amount.
SBA Loan
You can get an SBA loan, but keep in mind the U.S. Small Business Administration has tight eligibility criteria for loans it guarantees. Think about applying for an SBA loan because interest rates are generally lower and who knows, the lender might approve you
Business Line of Credit
With a business line of credit, you can access as much capital as your credit limit allows. However, you only have to pay interest on the money you actually use. You can address one-time costs or annual slowdown of seasonal business with a business line of credit.
Business Credit Cards
If you use a business credit card, you have immediate access to a revolving line of credit. However, you receive frequent rewards offer and even sign-up bonuses using business credit card, but the repayment terms and APR are typically tougher.
Microloans
Microloans, or short-term loans under $50,000, can assist you in improving both your cash flow and credit score.
Equipment Financing
When you take out a loan to buy business-related equipment, the equipment serves as collateral. So, if you fail to repay your loan, the lender can repossess your business assets. You can build a business with an asset or anything you own, as long as it’s not outdated.
8. Gather Relevant Documents
To apply for a business loan, gather relevant documents.
Depending on the lender, you may need to send some or all of the following paperwork along with your application:
• Business and personal tax returns
• Business and personal bank statements
• Business financial statements
• Business legal documents (e.g., articles of incorporation, commercial lease, franchise agreement)
• State registration and license
• Business plan
9. Submit Your Application
To get business funding, submit your application
Before approaching your preferred lender, make sure you are familiar with the required loan type, size, and purpose. You can confidently submit an application for a loan after gathering all of your data. If your lender accepts you, comprehend the terms and agreements before committing.
Research and confirm the reputation of any lender you are considering before you sign any agreements.
>>>GET SMARTER: What Documents Are Required for a Business Loan?
10. Have a Backup Plan In Case The Lender Denies Your Application
To obtain a business loan, have a backup plan in case the lender denies your application.
To get a loan as soon as possible, you can investigate other options. Try out these choices:
• Make a Larger Down Payment
• Get a Cosigner
• Apply for a Secured Loan
• Apply With Other Lenders
Conclusion
To get a business loan, check your personal and business credit score, clean up your credit reports, establish your need for financing. That’s not all though, know how to repay the business loan, understand the lender’s eligibility requirement, decide the type of business loan you need, and gather relevant documents. Keep in mind to submit your application and have a backup plan in case the lender denies your application. With these, you can successfully get a business loan.
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