For most of the new small businesses, the process of getting small business loans can be complicated. The main objective of small business loan is to fund business’ growth, cover cash flow gaps and invest in working capital. Getting wrong type of loan for your small business can put you in an awkward financial position. Therefore, whatever your reason of getting a small business loan is, you need to find the best funding from a reputable source.
With almost hundreds of lenders and thousands of lending products in the market, it is quite difficult to pick the best one. Here we will focus on some tips to help you navigate the business lending process.
- Prepare Before You Need Loan
The business funding process can be quite easy and can be complicated based on some factors which include, the loan type, lender as well as reason for getting loan. From start to end, I mean from application process to funding process, small business lending can take one day to a month based on the type and size of the funding program that you are looking for. However it is recommended to small business owners rather than waiting until last minute to apply for funding, you need to prepare for the need arise.
- Determine How Much Amount You Need
Before going to your lender for a small business loan, you need to determine your financial requirements and how much amount of cash you need to borrow. As most of the times, small business lenders want to see a clearly defined reason for the loan. So it is better for you to be prepared for this before approaching lenders.
- Know Your Funding Options
It is also an important factor to consider for small business owners. Knowing all your funding option is in your own interest. You can better understand about what are your funding needs and what type of funding program will be a best fit for your small business. Knowing all your available funding options also can help you in making well-informed decisions that will definitely help you in your business growth.
- Be Prepared For Loan Presentation
Throughout your loan presentation, your lender wants to know what your business is about, what type of financial needs you currently have, and they can help your business without putting their money at risk. Therefore, you need to be prepared to provide an explanation for all this. One of the major thing that you can add into your loan presentation is your business plan.
- Have an Excellent Credit Rating
Despite the fact that different lenders have different credit score requirements, having an excellent personal credit score, almost 700, will help with your loan application. Most of the small business lenders consider both personal and business credit scores, so you have to make certain that both of your credit scores are in good shape. As part of the lending process, your lender will verify your credit scores from credit bureaus.
- Show Your Business Profitability
Your business profitability is another factor that your lender will consider before making any business funding. Lenders will examine irregular profits, and then project what profits may be in the future. They will then calculate how much debt your business will be able to service easily, and then use that to help calculate the funding amount in conjunction with terms and rates.
- Show Your Business’ Growth
The lender will observe your small business performance for the last few years to decide if to approve your loan or not, after which underwrite the facility, they’re still funding primarily based on your business’ future sales. Showing them a constructive trend in sales and growth can help you in getting funding at affordable rates and terms.
- Have Sufficient Liquidity and Cash Flow
When applying for a small business loan, most small business lenders will normally ask for almost 20-25% down payment. This means that you must have sufficient cash on hand in order to cover this amount. Additionally, small business lenders will want to see your cash flow to determine whether it is enough to cover the monthly small business loan payments.
- Ensure You Don’t Have Tax Liens
One way to make certain that your business loses access to the best possible rates and terms offered by conventional lenders is to have income tax liens. Tax liens are one of the major disqualifying factor to traditional type of funding product such as SBA loans. As the Small Business Administration (SBA) requires you to be in good standing with government.
- Prove Your Debt Repayment Ability
Small business loan qualification requirements vary from lender to lender. However, all lenders need to make sure that your business has the ability to repay your debts. So before you apply for a small business loan, make sure to prepare all important documents to prove your loan repayment ability. These files consist of business plan and strategies, business and personal tax returns, and current financial statements.
- Know What Lenders Are Considering
As every lender has their own set of lending criteria. Some small business lenders focus on business and credit history while some focus on the projected profits and future cash flow. However one thing that every lender will consider is loan repayment ability. By showing them your repayment ability, you can get small business loan effortlessly.
- Be Prepared with 5 C’s of Credit
Despite the fact that different lenders have different lending standards, most of them are concerned about your 5C’s of credit. These 5C’s of credit are the determining factors of your ability to repay the loan, how much you need, your business’ current condition, the collateral you place to secure the loan, and your overall character as a business owner. So you need to be prepared with 5 C’s of credit before applying for a small business loan.
- Look for the Best Rates
If you want to get best rates on small business loan, you need to go through the lending market. Visit a couple of lenders and ask them about their terms and rates on a loan program. Compare those terms and rates and go for one that best suit your business requirements.