How to Apply for a Business Loan: The Top Tips to Know
59% of business owners took out a business loan to expand their business in 2017. When so many people are taking out business loans, it makes you wonder, should I get one too?
Business loans can help your business grow and stay afloat. Below we’ll look at how to apply for a business loan. This guide will help you if you’re in the market for a business loan.
Write a Business Plan
To start, you’ll want to write a business plan. In this plan, you’ll describe why your business needs the funds, what you’ll use them for, and how much money you need. This plan will be sent to the lender.
Writing the business plan will help you figure out how much money you need and how quickly you’ll be able to repay it. You’ll learn this as you’re preparing your financial statements. These statements must be included in your business plan.
Be clear on what you plan to spend the money on and why it’s important for your company. Don’t say you need a specific amount of money for the company without stating what its intended purpose is. For example, you can say you need it to upgrade equipment, buy inventory, expand your business, etc.
In this plan, you need to describe how you intend to pay back the loan as well. You need to show how much money your company is projected to make. This will help assure the lender that you’ll be able to pay back the loan.
Below we’ll list what should be included in your business plan:
- Past and projected financial statements
- Cash flow
- Income statements
- Balance sheets
- Collateral statement
- Your goals
- Your competition
- Market analysis
- How you’ll expand the company
Choose Your Loan
There are quite a few different business loans out there that you could get. Make sure to do your research so you can pick the loan that fits your needs.
If you’re just starting a company, you may not be able to get a loan right away. Most lenders will want to see your cash flow statement.
You won’t be able to provide the statement until after your first year of running your business. Seeing the cash flow statement will help them determine if you’ll be able to pay back the loan.
You may be able to buy Microloans, personal loans, or get a business credit card in the beginning.
If you’ve been in business for at least a year, more loan options become available to you. Some loans can include:
- SBA loans
- Term loans
- Business line of credit
- Accounts receivable financing and invoice factoring
- Equipment Financing
- Bridge loans
Pick a Lender
Don’t just look at one place when deciding on your lender. There are many different options out there, make sure you explore them all.
Once you’ve narrowed down your search, compare your top options. See which lender will give you the best loan option. Review the loans they offer and which ones you’ll qualify for.
Moreover, try to pick the loan with the lowest annual percentage rate (APR). On top of that, when you look at different options you may find better interest rates and terms.
Below is a list of some of the different types of lenders you can use:
- Credit unions
- Peer-to-peer (P2P) lending sites
- Bank lenders with SBA guarantee
Check Your Eligibility
First, You’ll need to provide your credit history when applying for a loan. If you have a credit score at 750 or above, you’re pretty much guaranteed to get a loan. If you are in the 700-749 range you are still in great shape, but may need to provide more information.
Once you reach 640-699 it gets a little dicey. You may qualify for some loans, but you won’t get the best deals. If you hit below 640 your loan options become very slim.
If you have a low credit score, you’ll need to work on building it back up first if you want good deals.
Second, to even qualify for most loans, as we stated before, you need to be in business for at least a year.
Third, what’s your annual revenue? Your lender will state a specific amount they want to receive. Find out how much it is and if you meet the requirements.
Fourth, check to see if you’ll be able to pay back the loan on time. If you can’t afford to pay the loan, you’re not likely to be eligible. Calculate how much you need to pay each month to see if you can afford the loan.
Finally, finding out if you meet the requirements of the loan. The lender may not believe that what you want the loan for falls under the purview of a business loan. That’s why it’s so important to write about what you’ll use the money for in your business plan.
Fill out the Application
Once you’ve figured out what loan you want, it’s time to fill out the application. Make sure you have all the proper paperwork at the ready to make the process smoother and faster.
Depending on who you chose as a lender will determine how you complete the application. For example, online, in person, or over the phone.
Keep in mind that the process isn’t quick. It could take a couple of days to a few months before the application process and funding is complete.
How to Apply for a Business Loan and Get It
Hopefully, this guide has helped you figure out how to apply for a business loan. It may seem like a lot of work, but in the end, it’ll be worth it.
What could be better than saving money for your company in the long run? It’ll help keep your business going and you won’t have to worry about closing your doors.
Reach out to us today if you have any questions or concerns about loans.