If you have a business idea and need funding, the first step is applying for a loan. But what are the requirements of getting a small business loan? How do you find the right lender? What kind of documentation do you need to complete an application? This article will address these questions and more so that you can get started on your own financing plans.
Fill out an application.
Once you’ve decided that a business loan is the right option for you, it’s time to apply. Business loans are available from several different types of lenders, but the application process is typically similar no matter which one you choose. The first step is identifying your needs and researching various lenders’ offerings and fees. Once you’re ready to begin filling out an application, be sure to gather all necessary documents and write down any questions before contacting a representative from the lender of your choice. Here’s what information we recommend gathering prior:
- Information about yourself (name, address, etc.)
- Personal financial details (your income)
- Business financial details (business plan)
Details about your business (type of business, number of employees) Documentation for any assets you’re borrowing against (property).
Explain your business and how you plan to use the loan.
- Explain your business and how you plan to use the loan.
- Explain what your business does, who it serves, and how the loan will help achieve your goals.
- Show how the loan will help your business grow or expand: What is it that you’re looking for in a financial partner?
- Demonstrate a strong track record of success: Are there examples of growth or expansion that have taken place under your leadership?
What is your plan for the future? How will this loan help you meet those goals?
If you’re applying for a loan, be prepared to discuss your financial situation and why you need the money.
Provide financial statements.
You’ll need to provide financial statements if you’re applying for a business loan through a private bank or credit union. A financial statement is a snapshot of your business’s financial health. It includes:
- Balance sheet, which is an accounting of the company’s assets, liabilities and owner’s equity at a given point in time
- Income statement, which shows revenue and expenses over a period of time (typically 12 months)
- Cash flow statement, which details how cash flows into and out of the business during the same time period as above
In addition to these three primary documents, banks may also ask you to provide statements on other topics such as owner’s equity and changes in stockholders’ equity.
To prepare the financial statements, you’ll need to gather information from your company’s accounting records. This includes sales revenue and expenses, as well as any assets or debts your business has incurred. The information can help you determine whether or not your company is profitable over time and whether it has enough cash on hand to pay its bills and other obligations.
Demonstrate good credit history.
Before you can get a business loan, you need to provide details about your business and spend time thinking about what kind of loan will work best for you. You should also demonstrate good credit history by making sure that there are no blips on your record.
To demonstrate good credit history:
- Have a clean bill of health from a credit report. A free copy of your credit report will reveal any errors in the information contained therein, which could reduce or eliminate the chances that an institution will approve you for one or more loans based on past behavior (or lack thereof).
- Avoid taking out other loans until after you’ve applied for the one at hand. If another lender discovers information indicating financial problems while reviewing your application, they may decide not to extend credit at all — regardless of whether or not this new lender approves it.
Be aware of what your credit report says about you. If you’ve never checked your own credit report, it’s probably time that you did. You don’t want any unpleasant surprises when applying for a loan or other type of financing.
Show collateral and a personal guarantee.
A business loan with collateral is a smart way to get funds quickly, especially if you’re looking for a small loan. Business owners can use equipment, inventory and real estate as collateral to secure a business line of credit or other financing. If you are a sole proprietor or partnership, you can also use your personal assets as collateral if needed.
By using your assets as collateral, you can protect yourself from defaulting on a loan if your business is struggling. By securing a business loan with collateral, you give the lender more security in case something goes wrong.
Shop around for other options.
If you’re looking for your first business loan, it can be tempting to think that the best deal is the one you find first. That way, you don’t have to look around and keep searching. But this line of thinking is misguided—and potentially costly!
You will want to shop around for other options before committing yourself to one lender, especially if they’re offering an unimpressive interest rate or other terms that seem unfavorable. Chances are good that another bank or credit union could offer a better package—or at least one closer in value than what you were originally offered.
It’s also important not to be afraid of rejection when asking banks and lenders for help with getting a business loan. People often worry about being turned down when talking with others about their finances, but this fear doesn’t serve anyone well; in fact, it may end up costing them money down the line if their concerns over rejection stop them from asking questions about available loans in the first place! If someone says no once or twice but continues asking around until they find someone willing and able enough (and willing) then chances are pretty high that they’ll get the help they need. By asking around, you can learn what types of loans are available and which ones best suit your needs. You may also be able to find out whether or not other businesses in your town have gotten similar loans recently—and if so, how well those ventures turned out.
Apply for a business loan with the right documentation, and you can get the loan you need to start your new company or expand your existing small business.
A business loan is a way for you to get the money you need to start or grow your small business. There are many different types of business loans, but they all have certain things in common. Your chances of getting a loan are better if you’re able to prove that your new venture has strong potential for future growth and profitability.
Business loans are available from a number of different lenders, including banks and credit unions. Businesses that are in their early stages often rely on personal loans or lines of credit to get started. Once your business is up and running, you may qualify for other types of financing such as equipment leases or SBA-backed loans.
It’s important to remember that you are not alone when it comes to applying for a business loan. There are many lenders who specialize in funding small businesses and entrepreneurs, and their expertise can help guide you through the process of applying for a loan that meets your needs.
