Getting a small business loan can be challenging, mainly due to its strict qualifications and procedures.
However, obtaining outside financing is often necessary to start, or grow, a small business. While it can be difficult to get a small business loan to be approved, here are the steps to get better chances at your loan approval:
Determine why you need the money.
Ask yourself how this loan could help your business. Is it to start your business? To manage expenses?
Planning how you would spend the money beforehand will save you from making unnecessary expenses out of the loan.
Decide which type of loan is perfect for you.
Lenders require records of cash flow to prove that it can support repayment of the loan.
If your company is on its first year, it can be almost impossible to get a small business loan approval. You’ll have to rely on business credit cards, crowdfunding, personal loans, or borrowing money from friends and relatives.
For businesses operating for more than a year, several options are available for you, including SBA loans, term loans, and more.
Determine the best type of small business lender.
You can acquire loans from banks, non-profit microlenders, and online lenders.
You can compare lenders with by considering their annual percentage rate. It’s best to opt for the lowest APR.
Find out if you qualify.
The first step to finding out if you qualify is to check your credit score.
Banks, in particular, prefer borrowers with credit scores at least above 680.
In addition to you credit score, lenders take into consideration the period of time that your business have been operating. They also look carefully at your business’ financials – especially cash flow – to evaluate whether it can support the repayment.
Gather your documents.
Finally, once you’ve compared your options and assessed your business’ financial standing, it’s time to collect your documents and apply for loans you qualify for.
The required documents depends on the lender.