4 Steps to Prepare the Best Business Loan Application

4 Steps to Prepare the Best Business Loan Application

Applying for a small business loan can be intimidating. While you’re excited about obtaining a loan to grow your business, you also worry about making a mistake that could impact your finances.

Learning more about small business loans doesn’t mean you have to apply. You can use this process to better understand what goes into obtaining a loan, how it could benefit you, and which steps to take if you decide it’s the right decision.

Every business is unique. For example, you may be seeking a loan despite your less than excellent credit or if you’re buying a home while applying for a business loan.

Regardless of your situation, there are things you need to understand about applying for a business loan before starting the application.

1. Prep your finances before starting

The process of getting started is easier than you realize. It’s about organizing your finances, knowing your options, and moving forward in the appropriate manner.

Before you start, here are two things you want to do:

Organize your finances

One of the primary fears associated with a small business loan application is the amount of information required. Every lender requires a variety of information. The U.S. Small Business Administration provides helpful information about loans and the financial documents needed to apply for various types of loans.

READ MORE  Should You Offer Equity Compensation to Employees

Know what type of business loans are available, the associated terms and conditions, and the application process. It may take time to collect this information, but it will help you make the best decision going forward.

2. Decide between a local bank or online application

In the past, the only way to obtain a small business loan was through a local lender.

Today, getting an online business loan is also an option. But where should you start? Let’s break it down:

Benefits of a local bank:

  • Ability to meet face to face
  • Existing relationship
  • Opportunity to ask others about their experience
  • Bank loans are cheaper than online loans

Advantages of an online business loan:

Decide where to start your search by asking yourself two questions:

Can I qualify for a bank loan?

Bank loans are notoriously hard to get approved for. You need a 700+ credit score, strong revenues, profitability, and good cash flow. If this describes your business, start with a bank as you stand a better chance.

How fast do I need this money?

Even if you could get approved by a bank, the process could take weeks or even months. If you need cash fast, your best option is online. Many online lenders can get you funded in days, although it may cost slightly more.

Only you can decide which option is best for you and your company. Be honest about your approval chances and what you need the money for.

READ MORE  10 Steps to Handle Business Rejection by Investors

3. Think like a lender

You’ve prepped for your loan search and decided where to start. Now, let’s talk about what lenders will be looking for during this search. Every lender has different criteria, but here are the most common factors:

  • Desired loan amount. Most lenders won’t make a loan greater than 8-12% of your annual revenue.
  • Loan purpose. Be upfront and specific about how you intend to use the funds with any lender.
  • Credit score. Your personal credit score is important. Ask lenders about their minimum credit score requirement.
  • Annual revenue. Lenders want to know your business can repay the loan.
  • Average bank balance. Lenders want to know you manage your cash flow.
  • Profitability of your business. Lenders may be hesitant if your business isn’t profitable, but other factors can offset lack of profitability.
  • Industry. Ask lenders if they work in your industry.

4. Follow best practices

Before you do anything, review the business loan application in its entirety. If you have questions, reach out to the lender before starting to avoid mistakes that delay the process.

As you complete the application, these tips are critical:

  • Be truthful and accurate with every piece of information. Lenders will require documentation to verify this information, so ensure your answers match the documents.
  • Be thorough. More information is always better.
  • Provide follow-up information promptly if required.

Once you complete the application, the only thing left is to wait for the final word from the lender.

Leave a Reply

Your email address will not be published. Required fields are marked *