For a small business to operate, it must have money to operate. In some cases, it’s in the form of cash on hand, but in many cases, it’s in the form of a business or personal loan. Due to the COVID-19 pandemic, the US government has stepped in to provide both grants, loans, and possibly forgivable loans. One form of small business financing is debt financing. To receive debt financing Small businesses can apply to banks, credit unions, and commercial lenders; however, in order to apply for grants and loans through the programs tied to COBID-19 a small business must apply through a bank that is affiliated with Small Business Administration (SBA) program.
4 Major Steps to Follow Through the Loan Application Process.
Know the Amount and What You Hope to Achieve with the Loan
It may seem obvious that a small business owner would know the reason for and amount of the business loan they need, but many times we find that all though someone my understands this themselves they have a harder time articulating it to others in a concise way. When you approach lenders, it’s best to have a well-thought-out plan to help keep the lender engaged. This is also true if you have a need for COVID-19 funds. Many times it is also important to have financial statements prepared before entering into the process so that you have an overall snapshot of the business as this can aid you in directing your overall plan for the funds.
Review Your Credit Score
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Regardless of the age of your business, we find that its best to know the credit score of your business as well as the personal credit score of the owners of the business. Typically if your business is older than 3 years lenders depend less on the personal credit score of owners, but many lenders that we work with still require a personal financial statement in order to evaluate the risk of taking on your project. Before you apply for a small business loan, take some time to get your personal credit history in order. Request your credit report from each of the major credit reporting agencies.
If you see any errors on your credit reports, you can write the agency a letter explaining the errors and request that they need to be fixed. If there is an error that the agency will not fix, file a credit dispute report. Check on your credit score. Many of the clients we work with or busy and do not have time to be as meticulous as needed to find and fight these issues. Due to this, many of our clients use our partner Credit RX America. Credit RX can clean up these issues and they do not charge a fee unless they find and repair credit issues. A credit score of about 700 is very good and significantly increases your chance of being approved for a loan.
Review Borrowing Options
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Look at the commercial banks available to you. Don’t just go to the large, national commercial banks. You may have a better chance of a loan at the smaller regional commercial banks. Other non-bank institutions might be options for you, such as credit unions. If you are a member of a local credit union, talk to the loan officer there about your need for a small business loan. If they make such loans, pick up a loan application there as well.
There are other options, such as microfinance loans that make loans to startups. If one lender turns you down, another may say yes to the same loan application, so keep trying.
If you want to apply for COVID-19 funds, you apply through your bank to the Small Business Association for the programs listed below.
Prepare Your Business Plan
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This may be your most important step. In order to get a small business loan from just about any lender, you have to prepare a good business plan. In fact, until you have a good business plan, chances are you won’t even know how much money you need or how fast you can repay it. Many of the small businesses we work with have not done a full detailed business plan before or if they have not completed on in a while.
Due to this let’s go over the key elements of a good business plan:
- Describe the business
- Analyze the market.
- Develop a sales and marketing plan.
- Prepare financial statements.
- Plan a Presentation
Business plans consist of many parts. A good business plan will have several years of past and project financial statements for your business. It will include a statement of collateral or the type and value of assets you will use to secure the loan. You will need to include an analysis of the market your business will serve as well as a statement of your own experience.
If you are applying for COVID-19 funds, you will have to be specific concerning how you are going to use the funds according to the terms of the program (see below) for which you are applying.
The best way to increase your chances of getting a loan is to have a well-thought-out plan. All of the items that we have summarized above are all things that you can do on your own, but if you would like to work with our team of consultants who have over 30 years of experience in the lending arena please give us a call and we would love to set up a complimentary zoom call to see if we can help you obtain the funds you need to continue to grow.