Preparing a loan application for the first time can be tricky, especially if you’re not sure what to expect. With this handy guide, you will be able to understand the process and make sure your application is ready before you walk into the bank.
The First Step in Getting a Business Loan Is Education
Lenders want their loans to be repaid, so they generally like to work with borrowers they trust. Research the basics of business loans before you approach a lender. You increase your chances of landing funding by showing that you understand the process and are knowledgeable about financing.
Build and Maintain a Good Credit Rating
Your credit score reflects the creditworthiness of your business. You’ll need to show that you have a good history of handling credit before you’ll be approved for a loan.
If you’re a brand-new business, you may want to start small by applying for a business credit card. As you use your credit card responsibly, you’ll build business credit and improve your credit utilization ratio, which will help you qualify for bigger, better loans.
Get Your Documents Organized
Keep proper records of your business’ income and expenses, as well as its debts and assets. Set up a bookkeeping system right away to make your application process easy and efficient.
Get Your Finances in Order
Determine how much you need
Before you go out and apply for a business loan, it’s crucial to get an accurate estimate of how much money you need.
If you request too much funding, it could cost you unnecessary interest on top of prepayment penalties. On the other hand, if you request less than what you need, you may have to go back for another loan or leave a project unfinished—both of which are avoidable with little research.
Determine how Much You Can Afford
Make sure the loan will fit into your budget in a way that leaves you enough money for other expenses. If not, consider adjusting your loan amount or loan type to make it more manageable.
Prepare Realistic Cash Flow Projections
When you apply for a business loan, lenders will want to know that you have a realistic plan to use the money. You should be able to provide them with data-backed projections that show your business’s future income and expenses as a result of this loan.
Decide Which Type of Loan Is Best for You
Here are a few loan types to think about:
– Term Loan – Short Term Loan – Business Line of Credit – Merchant Cash Advance – SBA 7(a) Loan
Find Collateral
Lenders make decisions based on how risky you are as a borrower. If they’re not sure they will see their money again, they won’t loan it to you. Collateral helps lower the risk for banks if you default on a loan.
