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, and do I know how to apply for a business loan?
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.
Knowing How to Apply for a Business Loan Begins With Writing 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 prospective lenders.
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 the Business Loan You Want
Part of knowing how to apply for a business loan involves knowing what types of business loans are available. 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 qualify for an SBA Microloan, a personal loan, or get a business credit card in the beginning.
If you’ve been in business for at least a year, and your financials are readily available, then more loan options become available to you. Some of these business loans (which we can help you with) include:
- SBA loans
- Term loans
- Business line of credit
- Accounts receivable financing and invoice factoring
- Equipment Financing
- Bridge loans
Pick the Type of Lender You are Most Interested in Pursuing
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.
Find out which lender will give you the best loan proposal. Review all of the loan proposals that you have received and decide which ones you’ll most likely get approved for. Moreover, try to pick the loan with the lowest annual percentage rate (APR).
It is always a good idea to speak with more than one lender so you are able to look at multiple loan proposals. By doing this, you may end up finding more favorable interest rates and terms.
Below is a list of some of the different types of lenders you can use:
- Credit unions
- SBA lenders
- Traditional funding companies
- Peer-to-peer (P2P) lending sites
Find Out If You Meet the Lenders Requirements
First, you’ll need to allow the lender to pull your personal credit score when applying for a loan. If you have a credit score at 750 or above, that’s a great start to being approved for a loan. If you are in the 700-749 range you are still in good shape, but may need to provide more information about your credit.
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 your credit score is below 640, then your loan options become very limited. If you have a low credit score, you’ll want to work on improving it before applying for a loan.
Second, to even qualify for most business loans, as we stated before, you need to be in business for at least a year. Things such as being profitable and keeping up with your liabilities will help to increase the possibility of being approved for a loan.
Third, what’s your annual revenue and how much profit do you make? Your lender will state a specific amount in interest payments they expect to be paid. Find out how much it is and decide if your business will be able to keep up with making timely interest payments.
Finally, make a decision on whether you think you’ll be able to pay back the loan on or before the agreed upon due date. If you can’t afford to pay back the loan on time, then you’re most likely not going to be eligible.
Fill Out the Business Loan Application
After you have figured out what type of loan you want, and which lenders you want to apply with, it’s time to fill out the application. Make sure you have all the proper paperwork readily available as to make the application process smoother and faster.
Depending on which lenders you want to work with 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.
Or, if you want to make the application process as easy and as quick as possible, let us do the legwork work for you. Here is our free 90-second online application. All you have to do is fill it out, click submit, relax, and wait for one of our financial advisors to contact you.
Now You Know How to Apply for a Business Loan
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 business loans or call us at 888-782-0348.