Many small businesses find themselves with the difficulty of maintaining their finances properly. It requires time and effort – unless you can afford an accountant. But even that might be pushing your finances a bit too far. Many small businesses wind up resorting to taking out a loan. But often they find themselves having to jump through hoops just to get one.
Banks and lenders often have tight standards when it comes to business loans. But the problem is that third-party financing is often necessary to cover routine expenses like payroll, rent, inventory, permits, licenses, utilities, and so much more. But it could also help with enhancing marketing and sales, funding research and development, hiring more employees, etc.
It’s important to be prepared by having a sound estimate on what your expenses may be. This should be your first and foremost concern. You can go the traditional route or even apply through alternative lenders. LendGenius has been kind enough to detail what kind of banks will help small businesses specifically with loans, and you can read their post to learn more.
If you’re still unsure about how to go through the process of obtaining a small business loan, here are 5 important steps to get you started:
1. Understand why it is you need the loan in the first place
Sure, it may seem obvious to you when you begin to do the math in your head, but a lender is going to ask you why you need the loan. So you’d better have a detailed answer. Typically loans are asked for when starting up your business, but also often include managing routine expenses, growing your business, and having a safety cushion – especially to cover unexpected expenses.
2. Know the different kinds of loans available and find the right one for your business
Multiple types of loans are out there, especially for small businesses, and depending on what your business will need, the options can vary. It will also depend on the length and specific terms of the loan. For example, you could get a small business line of credit, small business term loans, working capital loans, accounts receivable financing, loans through the Small Business Administration, small business credit cards, and equipment loans. Do your research.
3. Research what types of lenders will be able to help you
Even though the folks at LendGenius were kind enough to help you out with some options, it’s still important to know which lenders offer which kinds of loans. There are large commercial banks, local community banks, SBA-backed lenders, and direct online lenders to choose from.
4. Determine whether or not you qualify and be prepared for lender requirements
They’re going to want to know your credit score and credit history, time spent in business, assets put into the business, investors in the company, obtain financial statements, and review any outstanding loans and cash flow. So make sure your statements and other documents are in order.
5. Gather detailed information in preparation for your loan application
This includes business name, list of executive officers, legal structure, Federal Tax ID, tax returns, financial statements, projected financial statements, business credit report, state filings, amount of the loan requested, its potential collateral, and more.
You can significantly increase your chances of obtaining a small business loan by being prepared and anticipating what lenders will be looking for. There is a wide variety of lenders and a wide variety of loan types your business could benefit from. Take these 5 key points seriously, but continue to do your research to find out what works best for you and your business.