Simple Guide to Getting Small Business Loans
Small businesses almost always need some form of financial assistance to move along smoothly. Unfortunately, it is much more difficult for them to get business loans from lenders. This however, does not mean that there is no hope for them. Here are some pointers that will help you when it comes to the point you need a small business loan.
1. Know why you need the loan and whether it is absolutely necessary
Why do I need a loan? This is one of the most important questions you need to ask yourself when you feel you need a loan. If you have a legit reason for needing a loan, then by all means, get a loan. However, it is not absolutely crucial, a loan would only put more financial strain on you already small financial strength.
The most common reasons for needing a loan are to start a business, manage daily operation expenses, grow or expand the business, or to have a safety cushion. Lenders will most definitely ask why you need a loan and you need to have a satisfactory answer, so it is best to be prepared.
2. Understand different types of loan products available for small businesses and which one is best for you
There are numerous types of small business loans available, and each one will vary depending on your needs, payment period, terms, and more. That means that for each situation, there is a different product that is more suitable.
Some common types of loans are small business line of credit, Accounts receivable financing, Working capital loans, Small business term loans, SBA small business loans, and Equipment loans. Take the time to understand each one and find out which one, depending on your situation, is best suited. You can find more information on each here.
If you have just started out, it will be almost impossible to get a loan from any lender and you may need to find alternative means of financing your business. Lenders require businesses to have already established cash flow and some form of history. Businesses that are more than a year old are therefore better placed at getting loans.
3. Find the best lender for your small business
After you have an idea of the type of financing you need, it is time to shop for a lender. Online lenders, nonprofit microlenders, and banks, are some places you can get small business loan products. They offer products including, but not limited to lines of credit, term loans, unsecured business loans, and accounts receivable financing.
Take time to research two or three similar options from different lenders before settling for one. If you do not need cash fast, have a good credit score, and can provide collateral, banks would be the best place to look, they offer the lowest APR, but it could take up to six months to get approved. It could also be very difficult for small businesses to get loans from banks. In this situation, microlenders would be a better place to look.
Microlenders are excellent for startups and small businesses that cannot get business loans from banks. They however have a higher APR but faster approval times compared to banks. It is also possible to get unsecured business loans from them if you have a good credit score.
Online lenders can be a good place to get your small business loan especially if you do not have collateral, need funds urgently, and you have not been in business for long. You should however note that they have the highest APR (between 7% and 107%), but their approval rate is also very fast, often within 24 hours.
4. Find out if you qualify and anticipate your lender’s perception of you
Ultimately, all lenders will decide whether to or not to give you a small business loan based on your borrower’s credit score, and risk profile. Some factors they consider include your credit score, report, & history, outstanding loans, cash flow, financial statements, business assets, and how long you have been in business.
Review each of these carefully and take remedial actions if need be. You need to anticipate what they will think of you even before you make an application.
5. Get your documents in order
After you have carefully analyzed your options, it is time to apply for the loan. Make sure that the application forms you fill are complete, correct, and thorough, to give your lender of choice the clearest and most complete understanding of your business and needs. Include documents like balance sheets, cash flow statements, income & loss statements, and articles of incorporation.
You could also have a certified accountant go over your financial statements so you can better anticipate the issues that the lender may bring up and get prepared to address them.
Click here to get a certified financial assistant go over your documents and help you understand your credit worth