A business loan can help you raising funds for a startup business and establish or develop your firm, but understanding the loan procedure, as well as tighter lending criteria, can be difficult. Breaking it down into simple parts, such as understanding criteria, looking for lenders, and learning how to apply for a small-business loan, will help you get the money your company needs.
In 4 simple steps, here’s how to secure a business loan.
1. Determine If You Are Qualified for a Business Loan
See the following questions to see whether you qualify for a small-business loan:
How Long Have You Been in Operation?
Lenders will determine the length of time your company has been in operation. To qualify for most online small-business loans, you need to have been in business for at least one year and at least two years to be eligible for most bank loans.
Do You Have a Sufficient Income?
Many lenders have a minimum yearly revenue requirement, which can range from $50,000 to $250,000. Before you apply, calculate your income and find out what the minimum is for each lender.
Can You Make the Payments?
Examine your company’s financials, particularly its cash flow, and determine how much you can afford to put toward loan repayments each month. Some internet lenders need daily repayments, so keep that in mind.
Your income must be at least 1.25 times your total costs, including your increased repayment amount, to quickly repay your loan each month.
Assume your monthly revenue is $10,000, and you currently spend $7,000 in rent, wages, and other expenses. Because $10,000 equals 1.25 times $8,000 in total costs, you should be able to afford a $1,000 monthly loan payment, according to this approach.
Do You Have Any Collateral?
Many lenders provide both secured and unsecured company loans. A secured loan necessitates the provision of business collateral, such as property or equipment, which the lender may confiscate if you fail to repay the loan.
Putting up collateral is hazardous, but it may also increase the number of money lenders lend you and earn you a cheaper interest rate.
Even for unsecured loans, lenders may need a personal guarantee. This implies that if your company cannot return the loan, you will personally reimburse it, and a lender may repossess your home or car in the event of nonpayment.
2.Determine the Sort of Loan You Require
Lenders will inquire as to why you require a small-business loan. Your response will most likely fall into one of three categories, which will decide which form of business loan is best for you:
You want to start your own business. Lenders demand financial flow to sustain loan repayment. Thus most businesses cannot obtain business loans in their first year. Instead, you’ll have to rely on other forms of startup funding, such as company credit cards and personal loans.
You want to keep track of your day-to-day costs. A company line of credit might be beneficial. This type of flexible funding allows you to draw on it as needed to cover expenses such as payroll or unforeseen costs such as repairs, providing a helpful safety net when needed.
You wish to expand your company. Consider a typical term loan guaranteed by the government, which frequently has more significant borrowing limits.
3.Compare Small-Business Loan Providers
Small-business loans may be obtained from three primary sources: internet lenders, banks, and nonprofit microlenders. Each generally has many goods, although one may be superior in specific situations. Getting a co-founder in your small business can also be an option. Visit this website to learn how to find a cofounder with Starthawk.
4.Collect Your Paperwork
It is important to have all of the necessary paperwork before applying. Locating and making these data available immediately will assist in simplifying the process of obtaining small-business financing.
Depending on the lender, you may be required to provide a mix of the following documents:
- Personal and business tax returns
- Bank statements for both business and personal use.
- Financial statements for a business.
- Business strategy.
You did it! It’s time to apply now that you’ve chosen which sort of loan and lender is best for you.
Begin by comparing two or three comparable choices based on loan conditions, annual percentage rate, or APR. APR is the easiest method to comprehend the entire cost of a company loan for the year since it includes all loan costs in addition to the interest rate.
Choose the loan with the lowest APR among the ones you qualify for and apply with the papers you’ve acquired. It’s worth noting that credit agencies don’t distinguish between commercial and personal queries. When applying for a small business loan, your credit score may be damaged if you utilize your personal credit history, which is why it’s critical to go with your best bet.