5 Steps to Obtaining a Small Business Loan

A small business loan is monetary assistance from a lender that allows your company to expand and grow. But if you’ve never extended your hand for additional cash, you may not understand the challenges the process poses. With the following 5 steps, you’ll be able to understand the benefits of obtaining a small business loan and how to simplify the process.

Understand the Various Loan Options Available

Being able to stay afloat and achieve success in the business world takes hard work, dedication, and the right backers. If you’re looking for financial assistance to help in the growth of your company, a small business loan is a great place to start. Before you enlist the help of the experts, you need to understand the various loan options available to owners. A small business line of credit allows you to access money on an as needed basis. This is most useful for those who are looking to manage cash flow and pay for unexpected costs that may arise. Working capital loans are pre-set for a specific amount of money. Uses can include capital expenses, operations and expansion. The loan principal terms are typically from 6 months and up to 3 years. Interest is also paid on a monthly basis. If you need a small business loan for machinery, you may want to apply for an equipment loan. A down payment is necessary and usually based on between 10 and 20 percent of the equipment you want to purchase.

Research Lenders

You may want to obtain a business loan to help your business grow through advertising. Some of the money could also be used to reflect your company’s style and values through office furniture. The décor can also boost your productivity and organization. But before you begin to spend your money, you want to do your homework by researching the various lenders, and the services they provide. Direct online lending organizations offer an easy online process in a quick amount of time. Major commercial banking institutions such as Citibank and Wells Fargo can be slower to obtain. Plus, the criteria of the underwriting for the loan can be extensive. With today’s competition, you may be best suited to looking toward your local community bank as they seem ready to supply money to businesses nearby.

Assess Your Credit Risk

You should be taking a proactive approach to your credit rating long before you need to apply for a loan. Once you’ve established your business, you should be consistently mindful of paying your bills on time. A good accounting program such as Quick Books can allow you to keep track of bills and due dates. You can also set up reminders in the system, so you are never late. When considering a loan, a lender will also verify your credit report. You can order your own report in advance of obtaining a loan. This allows you the opportunity to verify that the information is correct and settle any disputes. Other considerations important to the lender include the amount of time you’ve been in business and assets such as cash flow.

Financial Statements Should Be in Order

The lender you choose to do business with is going to need accounting information. You need to organize your financial statements each month. This includes ensuring bills and deposits have been recorded and a bank reconciliation done at the end of the month. Balance sheets, profit and loss statements and cash flow records are typically required by your lender. Have your accountant review the material before you submit the documentation to the lender. If any questions arise, you’ll have a resolution.

Gather Detailed Information

If you want a greater chance of obtaining a loan for your small business, you want to have the required detailed information ready. This includes the name of your business, federal tax ID, financials, state filings, copies of insurance, credit reports and any collateral. You also want to determine the amount of money you need and why.

Small business loans are designed to help businesses through various financial situations. Whether you’re suffering growing pains and need to expand or you need money for equipment, lenders can prove valuable. With the above tips, you’ll be more knowledgeable in your pursuits. You’ll also be able to boost your chances at the loan when you have the proper documents ready.


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