A small business loan can help a business grow, help the business expand to even broader territories, and boost its marketing efforts. The following are six steps to guide borrowers on how to apply for small business loans.
- Decide on the type of loan needed for the business
There are various types of loans out there that can be used to support a small business. They include Traditions bank loans, Small Business Administration loans (SBA), online loans, among others. They all depend on the borrower’s needs and their ability to pay back.
- Be acquainted with how different banks and lenders assess borrowers
Most lenders and banks give loans with the expectation that payments will be made on the agreed date. For this reason, most of them will want to make sure that the borrower is capable of living up to the agreements.
They might consider reviewing their cash flows, credit history, the amount of time they’ve been in business, and credit score.
- Decide on the lender
After they’ve learned about the given qualifications they need for the given loan and decided on the financing of their business needs, it’s time to narrow down the search. Most lenders are after revenue and interests that they’ll get from lending the borrower’s business money.
Some of them might have clauses that might put the borrower’s business in a tight spot. So they need to decide whether they need a direct lender, they’ll opt for peer-to-peer lending, or they’ll use the lending marketplaces and obtain a loan based on their qualifications.
- Know their chances of getting the loan
When applying for a small business loan, they might end up hopeful and later denied the loan. It’s important to know the lenders they stand a chance with so that they can spend those many hours of application wisely.
For example, having a credit score of less than 700 will make it hard for them to obtain a bank loan.
- Gather the necessary documents
For many loan applications, they need to have the right documents to get approved. This might include IRS documentation, their business bank statements, business/personal credit scores, a business plan, and any legal contract that might be needed.
According to Lantern Credit, credit scores can be good indicators of how responsible the borrower has been with paying past debts, giving lenders an idea of what level of risk they might pose.
- Fill out the loan application
With the right documents, this step should be simpler. They should ensure they give accurate information where required and do not fabricate anything about themselves or their business.
After the application, the waiting period is usually between 24 hours and six months, depending on the type of loan they’re applying for.
Although some might find the process a bit tedious, it can’t be denied the benefit that an approved loan might have on the future of any business. For those with bad credit and might be searching for small business loans, it’ll be helpful for them to start improving it now.