The process and standards can be overwhelming if you are looking for funding. Learning about different types of business loans to obtain will help lower your frustration when applying. The knowledge will help It become more of a friendly step-by-step process. It is a huge advantage if you understand what requirements must be met before shopping around or finding a lender who offers specific products that fit your needs as an entrepreneur.
A small business loan may seem like something out there only accessible through large banks, but this isn’t always true! There’s no need to go straight into applying without knowing all steps involved. Breaking it down to friendly steps – from understanding the requirements to shopping for lenders and finding out how to apply for a small business loan can assist you in securing the funding required by your business.
Steps to Get a Business Loan
Below are the simple steps involved in obtaining a business loan.
- Find out how much you need
First, find out how much loan you need by writing out what and why you need the money. A small business loan may be necessary to:
- Start your business
- Purchase equipment
- Increase inventory
- Improve cash flow
What you need the money for can vary based on the stage of life your business is currently in (such as startup). To figure out the perfect loan amount for your business, create a list of things that could help your business grow if you had the funds to secure these resources. Then, perform a little research to help determine how much loan you will need to cover the costs.
- Check your credit score and history.
An aspect of the loan process includes lenders checking your credit score and history. And usually, lenders may check personal and business credit information. It is advisable to check your credit score and history before applying for any loan – mainly if you are new to running a business. Before applying for any business loan, go through your credit score and history. You can request a credit score from Dun & Bradstreet. Or, you may be able to know where your credit stands from your bank and credit card companies’ reports.
- Check your loan options.
There are different loan options to select from as of late. Before you begin to look around for a lender and apply for a small business loan, you must know the various types. Many loans are designed for specific types of businesses or certain financial situations. Below are some types of business loans to consider:
- Bank loan: Most famous type of small business loan is where an enterprise applies for a loan via a bank.
- SBA (Small Business Administration) loan: This supports loans or lines of credit with a little guarantee.
- SBA 7(a) loan: Use for real estate, refinancing, working capital, renovation, and equipment.
- SBA microloan: Ideal for starting a business.
- Short-term loans: Lump sums that you repay (plus interest) over a shorter period.
- Long-term loans: Larger loan amounts paid back over a long period plus low-interest rates.
- Term loan: This includes short-term and long-term loans that you repay in a scheduled period plus interest.
- Disaster loans: Loans for business-facing hardship because of declared disasters (such as COVID-19, natural disasters).
- Microloans: Loans for new businesses with small financing needs.
- Inspect your local SCORE and SBDC offices
You may want to look into your local SCORE and SBCDS offices as a startup business. SCORE and Small Business Development Center (SBDC) provide better advice to small enterprises all over the nation. SCORE is filled with retired business owners who can provide physical guidance to business owners. SBDC is a part of SBA and is also there to help small businesses. The two organizations can help you with the business loan application process and answer your questions.
- Find out the type of lender you need
When you are getting a small business loan, you have numerous options. You don’t have to go to only a large, national bank for a loan. You can also obtain a loan from a smaller lender.
Below are a few types of lenders you can select from:
- Credit unions
- Nonprofit lenders
- Online lenders
Your preferred lender can vary based on the type of loan you seek (check step three). Before you go with a lender, do your research. Consider factors like total borrowing costs and interest rates. And, make sure you check reviews to determine what other clients are saying.
- Gather the needed documents
After you figure out the lender you want to choose, find out what documents they require for a loan. In general, you may want to provide these:
- Business plan
- Financial statements
- Business license and permits
- Identification such as driver’s license
- Business banking account
- Bank statements
- Business tax returns
- Other business documents such as articles of incorporation)
If you are a startup, you may not have the complete information above. Before applying for a loan, ensure you know what information you need and the accounts you need to set up. Each lender has unique requirements and qualification criteria. So, find out what your potential lender requires to determine what exact information you need to provide.
- Complete your application
Having gathered all of your important documents, you can now enter the fun part: submitting your loan application and applying for the loan officially. Schedule an appointment with a lender to start the process on your business loan application. Based on your lender, you may be able to apply online or over the phone. However, many lenders ask that you fill out a paper application physically.
Regardless of your lender’s method, ensure you go with your documents (such as business licenses, ID, permits, and so on). After you complete your application, the lender will be subjected to an underwriting process. An underwriting process confirms your information (such as debt, income, credit, and so on0 to provide approval for the loan.
Right Time to take Action
In the end, finding out how to obtain a business loan is not easy. With that, however, if you take the time and effort needed to put your personal and business financials into order, your chances of obtaining a business loan and a nicely-priced one – increase significantly.
If you cannot still handle this process alone, this is the Right Time to seek a professional’s help.
JaScott is in partnership with private investors and companies to assist your business to grow. We have a list of 50 business lending programs that can help business owners gain the best options for loans and investment. We have fantastic business mechanics, and we accommodate the needs of our customers.
Choose and apply for any of the business loans now!
Are you confused about which of the loans above is suitable for you? In the next module, I will be discussing how to determine which type of business loan is right for you.
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