Business loans were so easy to get before the Great Recession. Now, banks and lending associations are stricter when it comes to approving business loans. But they all still need to loan money to small businesses. So it is not impossible to get the funding source needed for a start up or for business growth. What is important is for entrepreneurs to know how to apply for a business loan and get the best terms.
Here is a 7 step practical guide on how to get a business loan:
Step 1: Start preparing before the loan is needed. It is critical to build a relationship with the the lender before the business actually needs the loan. Know your key contacts and let them know about your company before asking for anything. Remember, people do business with who they know, like, and trust.
Step 2: Decide what the money is needed for. There are good reasons for needing a loan, like financing a piece of equipment, real estate, long term software development or large seasonal sales variances. There are also bad reasons like financing ongoing losses, office build outs, or acquiring non-essential business assets. Make sure that your business loan is built on good reasonable terms.
Step 3: Determine the exact amount of money the company needs. A lot of small businesses have made a common mistake of not asking for large enough loans. Underestimating can lead to problems with a lack of working capital sooner than planned. Overestimated amounts can make lenders question the business owner’s assumptions and credibility. Make sure you research and create a strong business plan with a budget with financial projections, such as profit & loss statement and a cash flow statement.
Step 4: Know the score. Lenders still look at personal credit scores as a way to judge the reliability of the principals who are borrowing the money. Know what lenders look for and how the scores compare to those expectations.
Step 5: Research on a lender that best fits the business’ needs.
Step 6: Prepare the paperwork to be submitted in order to apply for a loan. It generally includes the following documents:
Some lenders may even look at the personal social media accounts as part of their research. The application documents vary depending on the lenders requirements.
Step 7: Expect to get an answer within two to four weeks. Check in each week for a status. It is typical that the lending institution will need additional documentation.