Those are various ways to get a business loan but for small business it seems to be not easy, due to tight lending standards by banks. However a small business can easy obtain outside financial support to start up or grow their business or cover the expenses. So how to get small business loan will be the new talk we discuss today.
There always a time when something go wrong and your company need amount of money to cover those problems. Although you try to finished all paper work and apply for an approval from a bank but it will take too long and might never happen. That why we specify some step to helps you easy get a loan for your business
A. Which Steps For Getting Small Business Loan
At first you have to ask yourself the purpose of those money and how this amount of money will help your business. Second, you should find the type of your business loan. Then you should looking through some lender and choose the best for your need to minimum the expenses and got best term of you loan. Then consider ì you qualify to get the loan or not. Finally you have to gather all in need information such as: your credit score or the paper of annual revenue. When all is ready bring document to lenders and apply for the loan you want to borrow.
For more clearly we will specify each step as follow:
- Why do you need this loan
Before deciding to get a loan you have to carefully consider your situation. Do you need this amount of money and how it will help you. But it often falls into one of those four categories: to start your business, manage daily expenses, grow your business or just to get a safety cushion.
- Which type of loan is the right for you
Obviously your reasons for need the loan will be the most important feature dictate the type of business loan.
If you want starting your own business, it might be a bit easy to get a loan for your company at first year. But lenders or banks require cash flow that ensures you have ability to support repayment the loan. If you can’t catch this require your document will be immediately disqualified from financing.
In that case most people choosing another option. Borrow from friends, family, personal loan or a microloan from non-profit lender. It might be harder to get all the money you need but it still the best choice when start up.
For business that are old and more of history and revenue. You will have more financial options including term loan, business lines of credit, invoice factoring or even SBA loan. Just consider your situation to figure out the best option for your business.
- Choosing the best lender for your business
The small business loans might be got from banks, non-profit lender or even online lenders.
You choose the bank when you can provide collateral security. It is also suitable when you have good credit and don’t need cash fast. Borrow from the bank will take certain of time: about two or six months to get approve due to your sales, cash reserves, add to bad personal credit or no collateral. But banks are usually gives you a lowest interest, so most people still likes the bank.
- Non-Profit Lender
If your company is too small you can’t get a traditional loan. That why most smaller companies choosing microlender which willing to lend a short term loan less than $3500 for them. The interest of this loan is higher than banks. But when banks not work, this non-profit lender is definitely the best choice. They just require a detail business plan and your financial statements as well as specify purposes of the loan. This loan often go with definition “micro” but it totally work well for small company or start up.
- Online Lenders
Online lenders might be new for some but it is most use by small business which lack collateral, lack time and need funding quickly.
Online lender provides loans for small business from $500 to $500,000. The average of APR ranges from 7% to 108%. It seems to be more costly in some case. But this APR depend on the lender, type and size of loan, the length of payment term, your company credit term or even collateral. But it also has advantages than traditional banks by how quickly you can get money. You just need 24 hours to get the loan.
List of best quality lender that you should join
- Find out if you qualify
- Your credit score
Your credit score is one of the factors that determine which loan you will qualify for. It shows lenders how trustworthy you are and show if you can repayment the money on right time. You might get your credit report as well as your personal finance. When your credit scores at least 680 you have a chance to get small business loan at lower interest. If your score is under that point you should consider for getting a loan with bad credit.
- Annual Revenue
The lender often consider if your business is making money. If your business makes high revenue the better it shows you can repay money quickly. And remember we only consider revenue not profit of your company. Obviously the more profitable you made the large chance for you to get the loan. The annual revenue above $500,000 is good enough for most lenders.
- Average Bank Balance
Your average bank balance shows that you are good at both making money and manage it. If you have some cash on hand show that you can repayment even when your sale drops. An average bank balance of $5,000 is a good start. The more cash you have on your hand equal with the large of the loan you might borrow.
- Balance Sheet
A balance sheet shows your business’s health and how your business functions financially. Balance sheet also one of the conventional loan requirement but it is better if you update that balance often.
- Gather your documents
When you got a chance to borrow some money you must gather all documents that the lender requires. Depending on the lender you will need different document but it often includes:
- Business and personal tax returns
- Business and personal bank statements
- Business financial statements
- Business legal documents
In conclusion you will see that get a small business loan is not difficult. You just need carefully consider your business need then find the best lender for your company. Finally let gather all in need document and apply for a loan.