With the stringent lending standards of banks at the present time, getting a business loan is a major achievement for someone who is starting a new business. Additionally, it can be an obstacle to overcome for existing businesses looking for funding for expansion and growth. This is the best way for any business.
Determine the Loan Objective
Before you jump into the application process to different lenders, you should know why you need funding. Are you in need of a small business loan to start a business or to expand an existing business? Are you looking for a larger amount of loan? All of these elements will determine what type of lender and loan to look for. When you decide on the reason why you need a loan, the subsequent step is assessing the types of loans.
Know the Types of Business Loans
You need to make investments many times in researching the details of different loan types. The primary and foremost decision is whether to look for a government-backed funding or private funding. Also, determine whether or not you need a conventional loan or have a solid business plan to seek help from alternative lenders. Here is a quick review of business loan types and their purposes:
- Startup loans are ideal for starting a small or large business.
- Working capital loans and invoice factoring are best options for established businesses looking for extra funds.
- A line of credit score is ideal for business expansion or daily expenses throughout the dry spell.
- Business expansion loans are useful for growing a successful business.
Decide What Type of Lender Is Good For You
For some people, an online lending platform can be the best option and for others, traditional banks can be the best option. Peer-to-peer loans typically include more flexible terms, lower interest for those with less-than-perfect credit score and quicker approval times. These type of loans are quite simple to apply for, and the whole process can be carried out online.
In case you have perfect credit and do not wait until the last minute to apply for funding, a traditional bank can be the best solution for you. Additionally, banks offer low interest rates while you provide collateral. Investors may be difficult to find; however are a practical option if you have a strong business plan and are considered a low investment risk. Micro lender, a nonprofit organization is another funding option may lend you money while banks and different lenders are unwilling to provide funding.
Determine Your Qualification
Everyone is entitled to a free yearly credit report from Annual Credit Report, which is the only website online advocated by the government. Know your credit rating, and pay attention to the glitches on your credit report if any. In case there are imprecisions on your credit report, remove or fix them. You need to compare your debt along with your income.
For an existing business, lenders normally need an annual revenue of $50,000 to $150,000 based on the size of your business. Furthermore, most banks require 680 or above credit score. However, peer to peer lenders, angel investors and micro lenders normally have lower score requirements. Some lenders require you to be in business for a certain time to lend you cash. Getting a snapshot of your credit before will help you decide what type of loan you need and what type of lenders are willing to work with you.
Organize Your Papers
There are some required information. You will need to provide background information, a business plan and evidence of any collateral when appropriate. Here are some of the documents that you need to gather before applying for a business loan:
- Tax forms for the past several years or since the business was started.
- Quarterly and annual financial statements showing revenue and expenses.
- Personal business bank statements for the last few years.
- Any legal files related to the start of the business.
These files will save you any holdups in the loan application process. While applying at multiple lenders, understand that many credit inquiries in a short period of time may momentarily decrease your score. This may effect on a lender’s approval decision or your interest rate. Because of this, you need to only apply for loan when you are ready to accept a loan.