Getting a loan amongst small business entrepreneurs is becoming tougher on daily basis. This therefore has presented a necessity to come up with appropriate business plans which will win the confidence of lenders. These plans should clearly depict the situation of a business and be crafted in a way that is professional and presentable in the eyes of the lenders. However, although many small businesses will do this, they tend to fail when it comes to stepwise application of loans. In this note, we have come up with 6 detailed steps which you can utilize while applying a small business loan.

1. Determine Why You Need the Money

It is very likely that this will form the first question the lenders ask you. So, it is critical that you come up with a justified reason as to why you need the loan.  Is it for purchasing a new equipment?Do you need the money to finance your sales losses? theseand more such questions should be the foundationof your application plan.Having a clear mind on the reason why you need the financing will determine the success rate of your application.

2. Decide on the Amount

Sinceyou have probably decided on why you need the loan, you should now decide how much will satisfy your need.   Do not guesstimate but rather analyze your needs and come up with a clear figure on the amount required.  Under-estimating will only leave you with less money than you need while overestimating will only leave doubts among the lenders. In this case, take your time and calculate the exact amount of funds you need and have clear and viable projections. Such preparedness will improve your credibility before the lenders and increase your chances as a borrower.

3. Review Your Credit Score

Before picking your ideal lender, it is imperativeto analyze your credit and risk profile.  Get your credit report and check whether other lenders view you as good or bad credit. Traditional lenders such as banks will heavily rely on this information before deciding on your reliability to repay back.  They will also check whether you have other outstanding loans and compare it to your present cash flow to determine your eligibility. In this case, going through the report will assist any borrower to pick the right kind of lender depending on their credit scores.

4. Analyze Your Options andChoosea Suitable Lender

By now, depending on your credit score, you know whether you are in the category of good or bad credit. With that information, you will decide the most suitable lender for your business. If you have a bad credit; creditscore below 600, it would be wise to stay away from traditional banks and focus on alternative lenders.  If your score ranges between 700 to 850 and you have a unique business idea, then the commercial banks would be ideal for your enterprise.  You will also have to go further in research to identify their repayment terms, interest rates, and collateral demands for each and every lender.  Compare different lenders depending on those terms to determine the one who has a better deal for your business.

5. Prepare the Application Documents

There are different documents that go in handy with every loan application. They include the following

• Business Information and plan:  prepare your business information including the registration details such as name, incorporation certificates, and addresses. You should also have a well drafted business plan that includes your partner’s details and resumes.
• Financial Results:  have your financial and accounting documents in order as they will be critically examined by the lender. Such will include the statement of financial position and cash flow sheets. Make sure to have the most significant metrics noted, such as   revenue margins, accounts payable, receivables and thedebt-to-equity ratios.  Having these figures will assist you answer the majority of questions asked by the lenders.
• Tax details of your business:  Be prepared to present your personal and business Tax ID’s.  In handy, you should also have signed tax returns copies of the business for the past 3 years.

6. Make an Application

 Make the loan application whether in person or online depending on the lender’s specifications.               Be prepared to provide additional documents when needed.  Be sure to check on your loan status after every two weeks. Some applications may take longer than others, but most will take between 1 to 3 months. That does explain why it is advisable to apply for the funds long before you need it.