Business Loan Application
While the exact requirements to qualify for a business loan vary depending on which lender you choose, there are several steps you can take to ensure you have the best chance of receiving an offer that suits you both now and in the long run.
1. Organize your business documents.
Before you apply for a loan you will need to make sure that you have all of your business documents accessible. This includes paperwork that establishes the business, tax documents, and financial records. You may not need all of them for your application, but having them prepared will save you time.
2. Check your business and personal credit score.
You’re likely somewhat familiar with your own personal credit score and it’s important to make sure that is high enough to qualify for loans before you start the application process. You should also be aware of your business’s credit score, which is determined by your business’s financial health and is tied to your business’s EIN. Applying for a loan may ding your score a few points so you’ll want to make sure that both credit scores are at a stable place before you submit your application.
3. Figure out what kind of loan type you will need.
There are several different types of business loans out there so you will need to figure out which one best suits your business needs. If you’re not sure where to start, here are some of the most common types of business loans that are offered:
SBA loans are a specific type of business loan that is guaranteed by the U.S. Small Business Administration. These are the most desirable type of business loan and those who are able to receive one will be able to use the funds for nearly any business related expense. SBA loans typically include low interest rates and long repayment terms which can make them the most flexible and manageable option. Although funding may not be as fast with SBA loans, once you do complete the application and funding process, you will have a loan with incredibly desirable terms.
Business Term Loan
These loans are the most traditional type of loan – you receive a lump sum that you pay back in some kind of regular installment.
Business Line of Credit
A business line of credit is a loan type that is more similar to having a credit card. You will have access to a specific amount that you can use as needed. The benefit of a line of credit is that you only pay interest on what you actually end up using.
Short-Term Business Loans
As the name suggests, short-term business loans are designed for short-term uses with features like fast financing and shorter repayment options.
Equipment financing is similar to a business term loan with one significant exception – the funds must be used to purchase equipment for your business. If you default on the loan the equipment purchased may be treated as collateral by your lender.
Invoice financing is a type of loan in which a business receives a cash advance in return for unpaid invoices.
Start-up Business Loans
Start-up Loans are designed for those with a limited credit history who are starting up their business. These typically offer smaller loan amounts but have more flexible application requirements.
Merchant Cash Advances
A Merchant Cash Advance is a type of small business loan where you receive a lump sum that is paid back when a percentage of your daily sales is deducted. There may also be fees applied on top of those deductions.
4. Make sure you have a concrete business plan in place that you can share with lenders.
Depending on which type of loan you are applying for and your current financial situation, you may need to present lenders with a concrete business plan to demonstrate expertise and help communicate the projected revenue and other factors that would define a successful business.
5. Determine what collateral you can offer.
Lenders make their decisions based on how big of a risk it will be to lend to a person or business as they want to make sure they’ll be paid back according to the schedule outlined in the contract. If they determine that it’s a higher risk to lend money to you, they may require collateral which is something that you offer up that the lender is allowed to take from you in the event that you are unable to make your payments. Examples of collateral can include business assets or personal ones.
6. Summarize your finances so that you know what loan terms you can afford to manage.
While there are certain situations where emergency loans are the best option, it’s wise to map out your finances in detail so that you can responsibly plan for a loan. This allows you to avoid the high interest rates and fees that often come with emergency loans. Spending time analyzing your finances also allows you to figure out what kind of payments you can afford to manage throughout the course of your loan so you’ll have the information ready so you can quickly and easily judge the offers that you are presented with to see if they’re a good fit.
While the exact terms of a business loan will vary depending on which lender you go with, these tips will help you prepare and give you your best chance of qualifying for the loan that can boost your business and set you up for success.