It can be intimidating to apply for a business loan. You are excited about the prospect of obtaining a loan to grow your business, but you might be worried about making a mistake which could affect your finances in a negative way. Every business is in a unique situation. You might be seeking a loan despite the fact that your credit is less than excellent. Regardless of your situation, there are things you need to understand about applying for a business loan, before starting the application.
Prepare your finances
The process of getting started is easier than most people realize. This is all about organizing your finances, knowing your options, and moving forward appropriately.
There are two things you want to do before you get started on your business loan application.
- Organize your finances: one of the primary fears associated with a small business loan application is the amount of information required.
- Understand your options: know what kinds of business loans are available, the terms each one has, and the application process.
Decide if you want to apply to a bank or online
You can apply to either a bank in person or do the process online. The benefits of dealing with your local bank include meeting face to face throughout the process, having an existing relationship with the bank, opportunity to ask others in your area about their experience with the lender, and it will be cheaper than an online loan.
The benefits of an online business loan include faster time to funding, easier applications, connecting multiple lenders through one application, and options if you have bad credit.
Some questions to ask yourself when you are searching for loans are:
- Can I qualify for a bank loan? – bank loans are known to be hard to get approved form. You need a credit score of 700 or higher, strong revenues, profitability, and good cash flow.
- How fast do I need the money? – keep in mind that the process can take a few weeks and up to months. If you need cash quickly, you will need to apply online. Many online lenders will get you funded in days.
Think like a lender
Every lender has different requirements they use to underwrite, but below you will find some of the most common factors.
- Desired loan amount: the loan amount can affect your chances of finding funding.
- Purpose of loan: depending on the purpose of your loan, you may not be able to work with certain lenders. Be upfront and specific with how you intend to use the funds with any lender.
- Credit score: your personal credit score is an important factor for lenders. You need to pull your credit score before you apply and ask lenders what their minimum credit score requirements.
- Annual revenue: lenders want to know your business is making enough to pay your loan back. The higher your revenue is, the better.
- Average bank balance: lenders want to know how you will manage the cash coming in. lenders want to see your bank statements to verify what your average bank balance is.
- Profitability of your business: lenders may be hesitant to work with you if your business is not profitable.
- Industry: there are some industries that are seen as riskier to certain lenders. Along with asking a lender what their minimum credit score threshold is, ask if they can work with your industry.
Follow best practices
Before you do anything, review the business loan application from start to end. Reach out to the lender before you start the process if you have any questions. This will clear up any questions you might have and improve your chances of avoiding mistakes that delay the process.
The following tips are crucial to your success:
- Be truthful and accurate with the information you provide. Lenders want certain documentation to verify the information, so you need to make sure your answers match what your documents say.
- Be thorough. The more information you have the better it will be.
- Do not delay in providing follow-up information, if it is required. You want to provide lenders with what they need while your application is at the top of their mind.