Applying for a small business loan can seem like a daunting task if you have never gone through the process before, but it’s actually easier than you may think. Getting an approval can still be difficult in the aftermath of the 2008 recession, but the application process will not take much of your time as long as you are prepared before approaching a lender. Here are some things to consider and steps you will need to take when applying for a small business loan.
Why Do You Need the Money?
This is one of the first questions a lender will ask you when you apply for a loan. Lenders want to know if the loan will be used to expand your business, purchase new equipment or increase inventory for seasonal variances like the holiday season. Lenders do not want to hear how the loan will be used to pay for revenue losses or to purchase non-essential equipment. Having a good reason for a loan makes it easier for the lender to make a final decision in approving a loan.
Know Your Credit History
Before applying for a small business loan, you will want to take a look at your credit report to see if your credit score is above 700. You may qualify for better rates and terms if you have a high credit score, but if your score is below 700, check for things like late payments, too many credit inquiries, liens or collection accounts, judgments, and bankruptcies. Not only will these issues affect your ability to get the best rates and terms, they may also affect your ability to get a loan. There are several websites where you can check your credit report for free, and if there are any problems, there are credit repair agencies that can help you clean up some of the issues on your report.
A lender will ask for several documents that will help them make a loan decision. These documents include:
• A recent credit report that was pulled within 30 days of applying (if available);
• A business plan (optional for some lenders);
• The last 2 to 3 years of personal tax returns and, if available, business tax returns;
• Financial statements such as profit & loss, balance sheet, and cash flow; and
• A rent roll if you own commercial property with tenants.
These documents should be put together in a package so that they can be readily available for the lender. Also, lenders will be looking at your personal and business websites and social media accounts you may have so that they can get to know your personal and business reputation.
Bank or Non-Bank Lenders
The next decision to make is choosing a bank or a non-bank lender for a loan. If you have been in business for two years or more with a strong revenue and cash flow, then you will have more options to choose from than if you are a start-up company. Local community banks, regional banks, and commercial banks are a logical choice to go to for most small business owners, but there are also non-bank micro and alternative lenders that you can also choose from.
Advance Funds Network is an alternative lender that is able to provide working capital to business owners who have been in business for at least three months. In addition to small business loans, Advance Funds Network offers lines of credit, merchant cash advances, invoice and purchase order factoring, business credit cards, and equipment leasing and financing. As a small business owner, you have many financing options available to you as long as you know what you need to money for and are prepared to talk to a lender.