Business Loan: All business owners or entrepreneurs know how important it is to have access to funds needed for business growth. For instance, you may need a business loan to purchase new equipment, expand existing operations, or even employ new staff. This can provide all the required financial support.
It may interest you to know that, while Business loan applications may be like a piece of cake for some, the process can be overwhelming for others. This is usually the case for those who are not familiar with the loan application process. For this reason, we’ve written this step-by-step loan application guide to help simplify the process.
This article is broken down into six (6) easy steps needed for the application process. Everything is covered; from determining the need for the loan to submitting the final application.
The aim of this article is simply to make the process of Business Loan Application as straightforward and stress-free as possible. With this, you can now focus on other matters that relate to growing your business.
Whether you’re still a newbie in business or an experienced and already practicing business owner, we cadge you to go through the whole steps. It will provide you with valuable insights and tips that will help you whenever the need for a business loan arises. Be sure that this will help to increase your chances of getting approved for any business loan.
So, relax and grab a cup of coffee while we prepare you on your journey to securing a business loan that will catapult your business to a higher level!
Step 1: Determine Your Business Loan Need
For every business owner, the thoughts of a business loan application may sound like a great idea! But before you make any move in this direction, it’s important to pause and figure out whether you need the loan, and why you need it.
What are those things you hoping to achieve with the loan? Are there expansions you want to make in your business, do you need to buy new equipment, or hire more staff? Whatever the reason you may have, make sure you have a clear goal in your mind. By this, you can choose the right loan that fits your needs.
It is also important to have a clear understanding of your financial needs. With is, you are sure to avoid borrowing more than required. If otherwise, it could lead to financial difficulties in the soon future.
Here are some essential points to consider when determining why you need the loan:
Identify the specific goal you hope to achieve with the Business loan.
Are you looking to expand your existing business, buy more equipment, employ more staff, or launch a new product or service? Whatever the need, having a clear goal in mind will help you focus your search for the right loan. It will also help to ensure that you don’t borrow more than you need.
Carry out an Assessment of your current financial situation.
Are you experiencing cash flow challenges, or have a specific project or expense that requires financing? You must be truthful to yourself about your financial needs and limitations. This way, you can choose a loan with terms that are realistic for your business.
Put the timing of your Business Loan into consideration.
Would you need the funds immediately; is it possible to wait a few months? If you have the time in your favor, why not use the opportunity to improve your credit score? Better still, use it to build up your business’s financial reserves before you put in the business loan application. This could help you secure a loan with more favorable terms.
Step 2: Check If You Are Qualified
Having made up your mind to apply for a business loan, it’s also important to make sure you meet the prospective lender’s requirements. Do note that every lender has different criteria required from a borrower. So, carry out a little research and find a lender that is a good fit for your business.
Below are not limited to some of the key points to help you check if you are eligible:
Foremost, Check your credit score.
Most Lenders must first check your credit score to see if you’re a good candidate for the business loan. The higher your credit score, the better your chance of getting approved. If you have assessed your score and it is low, why not take ample time to improve it before applying?
In other words, your credit score can be likened to a report card that tells your prospective lenders how reliable you are with money. A higher score implies that you’re less of a risk to the lender. So, ensure you check your credit score before applying for any business loan; address any issues that may not favor your loan application.
The second thing is to look at your finances.
Ask yourself if you are financially healthy and be honest with your answer. Lenders will also want to know whether your business is financially stable. They want to know if you can pay back the loan.
They simply carry out their assessment by looking at your business’s revenue, profits, as well as cash flow. You’ll be requested to provide your financial statements, tax returns, and a few other documents to help you prove that your business is financially ok. So be ready to provide all financial documents needed to show that you can repay the loan.
Finally, do you meet other requirements?
Many lenders may likely consider other factors like your business’s age, a particular location, or even the industry. Some lenders may need your business to have a certain least number of years of being in operation or need a certain level of annual revenue. Do well to review your eligibility criteria carefully to make sure you meet all the requirements.
Being eligible for a business loan increases your chances of your application getting approved. Also, it will help your chances of finding the right lender for your needs.
Step 3: Choose Only The Best Business Loan That Fits Your Need
When trying to take a decision about the best option for the business loan, you should put into consideration, your business’s needs, your cash flow, and your ability to repay the loan. Carefully spend time researching different lenders and loan options to find the one that will work best for your business. Remember, only the right loan can provide you with the necessary funds to help boost your business.
So, it is important to choose only the right type of business loan. This decision can impact your business’s financial future. Below are some of the common types of loans you might want to consider for your business:
These types of loans are best fit for long-term investments such as buying property, or expensive equipment, as the case may be.
If you’re running a small business that doesn’t qualify for those conventional bank loans, SBA loans may be a solution. This type can provide you with low-interest rates and long repayment terms.
An Equipment loan is specifically designed for purchasing equipment. Most times, the equipment you buy will serve as the loan collateral.
Does your business generate revenue from invoicing clients? If so, invoice financing might be a good loan option for you. Here, you will receive a loan advance on your outstanding invoices, and the lender collects the payments directly from your clients.
Line of Credit:
This type gives you access to a specific amount of funds that you can use whenever you need them. This type of loan is most suited for businesses that have unpredictable cash flows.
Merchant Cash Advance:
Merchant cash advance type of loan is repaid through a percentage of your business’s credit and debit card sales. This type is a good option for those businesses that generate a large part of their revenue through card sales.
Step 4: Make a Comparison of Different Lending Options
Any business owner thinking of getting a loan for his or her business, need to look at different options from different lenders and see what they offer. These five simple steps will help you compare the available options:
- Figure out the amount of money you need and what it is needed for.
- Do a little research to find lenders with good reputations that also offer business loans.
- Carefully go through the interest rates of different lenders. Check to see which ones give the best deals. Also, watch out for any extra fees that might pop up with the loan.
- Go through the terms and conditions of each loan. Make sure the option you choose is the best fit for your business. Some loans come with certain rules about how you can use the money; some will need you to put something up as security.
Having found the right lender for your needs, the next thing is to apply for a loan. Get all the information you need together, like your financial statements and business plans. You should also be ready to answer any questions they might have. This paragraph is well explained under the heading below:
Step 5: Gather All The Necessary Documents Required For Your Business Loan Application.
Now that you have made a choice on a particular lender, your next step is to gather some important documents. Although the type of loan or the lender in question may determine what type of documents you need. The common ones that most lenders usually need are:
A business plan is a written document that outlines a company’s goals, strategies, and financial projections. It typically includes information about the company’s products or services, target market, competition, management team, and marketing plan.
Financial statements are written records that summarize a company’s financial activities and performance. You will need to provide financial statements that show your business’s income, expenses, and cash flow.
Tax returns are official documents that taxpayers file with the government to report their income, expenses, and other relevant information used to determine their tax liability.
Prospective Lenders often ask for your personal and business tax returns from the last 2-3 years. Note this.
You may need to provide some other legal documents such as business licenses, articles of incorporation, and commercial leases.
For those applying for a secured loan, you will need to provide documentation for the collateral you are offering. This refers to the legal documents to secure the loan against a specific asset, such as property, inventory, or equipment. These documents provide the lender with a legal claim to the collateral in case the borrower defaults on the loan
Also, Lenders may request your personal identification, such as your driver’s license or passport.
Ensure you have all these necessary documents organized. More so, ensure that they are accurate and most importantly, up to date before submitting your loan application. This will help to hasten the application process and boost your chances of getting an approval.
Step 6: Finally, Submit Your Business Loan Application
This is the final step in the Business loan application. Try to review the application one more time before you submit it. This is just to make sure that all information is complete and accurate. Also check and ensure you have attached all the necessary documents such as Tax returns, financial statements, business plans, etc.
Having carried out the above, and you are ok with your application, you can now submit it to the lender. Some lenders may need you to submit your application online. Some may prefer you submit it in person or via mail in some cases. Whatever the method, just ensure you follow the lender’s instructions carefully.
Wait For Loan Approval
When you have submitted your application, the lender will go through or review it, and thereafter decide whether to approve your loan or not. If they approve it; good and fine. They will give you further details of the loan, something like the loan interest rate, repayment schedule, and any fees you may need to pay.
The approval timeline and corresponding funding usually vary, depending on the lender and the type of loan. At this point, you need patience. While you wait for funding, it may be necessary to start the preparation on how you will use the loan funds once they pay you.
But if your application is denied, you don’t have to worry. Try to learn from the experience and perhaps try again some other time. You may try to find out why you were denied in the first place. Also, work on improving your credit score or fixing any other issues that brought about the denial.
Remember, a business loan application requires time and effort, but it’s worth it since it will help your business grow. It is important not to rush through any of the steps or skip any vital or key information. Take it one step at a time, and you’ll surely be on your way to getting the Business loan you need!
Business Loan Application: Frequently Asked Questions (FAQs)
Here are some of the most important “Questions” that borrowers ask when applying for business loans. Take a moment to read through them before starting your loan application. This will help you make informed decisions and ensure a hassle-free loan application process.
Q: What’s the least credit score to get a business loan?
A: The least credit score required for a business loan differs from lender to lender and also depends on the type of loan. Usually, a credit score of 680 or above is ok for business loans.
Q: How long does it take to get approval for a business loan?
A: The time it takes to get approval for a business loan depends on the lender and the type of loan. Some lenders provide instant approval, while others may take a few weeks to review and approve your application.
Q: What Types Of Documents do I need to apply for a business loan?
A: The documents needed for a business loan depend on the lender and loan type. Generally, lenders require a business plan, financial statements, tax returns, and bank statements.
Q: Who can give me a business loan?
A: You can get a business loan from different lenders like banks, credit unions, online lenders, and the Small Business Administration (SBA).
Q: Can I still get a business loan if I have bad credit?
A: Yes, you may still qualify for a business loan, but it can be challenging, and you may face higher interest rates and fees. It’s a good idea to work on improving your credit score.
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