Running a small or medium sized business comes with a unique set of challenging situations. In addition to the matters that any small business owner anticipate and prepare for, from working capital to workers payrolls, operating overhead to supply chain issues, lease, rent, utilities and taxes, there always appear to be unexpected drawbacks waiting around every nook.
Here I want to add some simple yet sensible guides on how to prepare to apply for a small business loan.
What Type Of Information Do I Require For Applying?
Some lenders may require more paperwork and some may require less, but generally, you will require:
- Your personal and business credit history
- Business and personal financial statements for both established and startup businesses as well as projected financial statements
- Strong, comprehensive business plan
- Your business cash flow projections for at least one year
- Personal guarantees from all owners of the business
How Can I Make The Lending Process Easier?
You need to be organized; be comprehensive; and be responsible.
- Select your lender very carefully. Normally big banks tend to hesitate making small amount of loans as they consider them less lucrative and take the same underwriting and servicing. It doesn’t indicate that the big banks do not make small amount of loans; it is just more complicated.
- Contact banks or lenders that you’ve previously worked with
- Explore credit unions and community banks
- Talk to lender and find out what type of documentation they need
- You need to be detailed, and bring everything your lender will ask for. Many loan applications are rejected or experience pointless refusals due to incompleteness.
Before you start collecting and arranging the details and information required by your lenders to consider your loan request, you have to train yourself regarding all available business financing options so that you can understand and discuss intelligently with the lender.
What Is The Average Size Of Small Business Loan?
From a startup of a one-man company to hundreds of employees, there are many small businesses that come in different sizes and varied financial requirements. The average small business loan amount is about $130,000 to $140,000 with the highest amount around $250,000. The SBA microloans range from $5,000 to $5 million with the standard loan amount around $371,000.
What Are The Downsides That I Should Be Aware Of?
At the same time as you aware of the advantages of getting a small business loan, there are some downsides that you need to know before applying for a loan or accepting a line of credit once it is provided:
- Take Only The Amount You Actually Need: In case you want to open a new location for your business and you need $250,000, do not ask for $500,000. Your lender will consider your requirements when you apply for a loan, and in case you’re taking a hefty amount of loan which is necessary, you’re probably to be rejected. Even if you’re approved for that big amount, paying interest on that big amount that you actually didn’t need does not make sense.
- Be Careful About The Terms: Similarly to the interest rates, you need to be careful about the origination fees, early repayment penalties, and the legalities covered in your loan agreement. In case you’re not sure about the terms and legalities, have a lawyer or accountant help you so there are no surprises for you later on.
- Don’t Accept Bad Terms: It is advised to evaluate the loan rates, since the two same loan applications and can sometimes have completely different terms and it depends on the lender.
- Don’t Over-Extend Your Credit: Too many open lines of credit or loans can harm your ability to get credit in the future.
- Work Closely With Your Lenders: Your business probably is experiencing bad times. In case you are making efforts to keep up with all your business related payments; however you expect some issues, contact with your lenders. It is of their best interest that you pay them, and they may typically work with you in your trouble times.