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
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
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
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
4. Analyze Your Options andChoosea Suitable Lender
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
are different documents that go in handy with every loan application. They
include the following
- Business Information and
prepare your business information including the registration details
such as name, incorporation certificates, and addresses. You should also have a
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
Having these figures will assist you answer the majority of questions asked
by the lenders.
- Tax details of your
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.