There are few businesses you can run without having the need for extra capital. It is very difficult to run a business without looking for more capital to boost the business. In this article, we will discuss how to get a business loan from any source and the 7 guides to do so. Obtaining a business loan from the bank is one of the ways to get more funds for your business.
How To Get A Business Loan From Any Source
Although getting a loan from the bank for your business has its disadvantages, you can make it easier by being prepared and following the guides that will be given in this section. The following is how to get a business loan from the bank.
You Must Understand The Needs Of Your Small Business
The first step you must take when trying to find out how to get a business loan from any source is to understand and have a plan for your business. Know how much you want to get as a loan, and know the things the money from the loan can help you purchase. and finally how you have planned to pay back the loan.
Knowing the amount you need and how you have planned to use the loan will enable you to choose the type of loan you are qualified to apply for. The different types of loans will also have different payback periods either monthly or yearly. You need to research and identify the best type of business loan that will be suitable for your business and help you increase your chances of qualifying for a loan.
Cases Where You May Require A Business Loan include the following:
- For Business ExpansionTo Refinance an existing loan
- To purchase new equipment for the business
- To purchase New property
- To increase the working capital of the business
Determine The Amount You Can Borrow
One of the steps on how to get a business loan from any source is that you need to determine the amount of money you will like to borrow so as to take your business to the next level. After that, make sure that you will be able to pay back the loan the monthly or yearly repayment amount comfortably throughout the period.
You can use a business loan calculator to calculate how much you will be paying, know your loan options and what your business can afford. depending on variables like interest rates, term loans etc. It is very important you borrow only the amount that will help you boost your business and not stretch your business too hard with repayment plans.
Check The Eligibility Requirements
To check if you are eligible for any loan, there are some requirements of how to get a business loan from any source that you must meet. Eligibility requirements may differ between lenders. But some of the common factors that lenders will consider before giving out a loan include:
Annual Revenue: Lenders will always look at the business revenue before deciding whether or not to give out loans. The minimum revenue lenders will require will vary. Check the guide to compare the requirements for different loans and for different lenders.
Collateral/ Personal Guarantee: Lenders usually ask for collateral and personal guarantee before they will consider giving out loans to borrowers. Collateral can be equipment or personal items like houses that are valuable to the business.
Credit Score: The lender will look at the borrower’s credit report to know their financial health. They may also look at the business credit report especially if the business has been in existence for some time to know if it is healthy to give out loans or not.
Time In Business: Some lenders prefer to work with businesses that have existed over time so as to check their track records if it is healthy before they will decide to give out loans to them. Other lenders prefer dealing with brand-new businesses. So the lender’s choice is important to know if you are eligible or not.
Find Out The Type Of Business Loans Available
As a business owner that wants to get a loan, it is important you know the different types of loans, the purposes they serve and how to get a business loan from any source. This knowledge will help you determine the type of loan that will be best for your business. There are two major types of loans, secured and unsecured loans. A secured loan is one backed by collateral and an unsecured one is not backed by any collateral. Some of the types of loans you can consider include:
Cash Advances: This is a type of loan collected by borrowers which will be paid back based on projected income.
Equipment Loans: This is the type of loan that is mainly for the purchase or leasing of new equipment for the business.
Invoice Financing: This is the type of loan that business owners borrow against the money due from customers with outstanding invoices.
Line Of Credit: This is the type of loan that allows for funds to be borrowed often as the need arises.
Small Business Administration Loans: This is the type of loan that is partially guaranteed by the United States Small Business Administration(SBA).
Startup Loans: This is the type of loan that business owners request to enable them to start the business.
Term Loans: This is the type of loan that is given to business owners in a lump sum for business operations, but they are expected to be paying back the loan on a monthly basis until the term of the loan is over.
Inspect The Lenders Available
It is obvious that by now you must have known the amount you want to collect as a loan and how you will utilise the money. The next thing to do is to find lenders that can give you loans with conditions that will be favourable for your business. Look for lenders that offer the type of loan you need. There are different types of lenders with different requirements that must be met before the loan will be approved. If it is the type of loan that is approved by the Small Business Administration, ensure that your lender complies.
Banks And Credit Unions
You can go through a bank or credit union that you are already used to and apply for a loan. You should know that banks and credit unions have strict guidelines and requirements for approval and it might take a longer period before the loan will be approved and for you to get access to funds. Traditional lenders like banks and credit unions will request you present at least two years of financial data from your business. Aside from banks, there are other flexible options you can use to get loans.
Online lenders are one of the flexible means of getting loans aside the traditional banks. There are different approval standards for online lenders which may increase your chances of getting approvals. Online lenders tend to approve small business loans faster and you will get your money faster too than traditional lenders like banks.
In case your business is new and you are afraid you might not get loan approval for your business, you can try Microlenders as an option. This type of loan can provide funds up to $50,000 and have short terms.
Gather Your Documents
If you want to know how to get a business loan from any source, one of the processes or steps is to gather the necessary documents that may be required by lenders. Some lenders may require you to provide your credit report so that they will see your payment history. They will also look at your business revenue and other financial indicators so that they can determine if you can comfortably pay back the loan if it is approved. Below are some of the important documents that lenders may request and want to see.
- They will want to see your business bank statements for at least the past three months.
- A copy of your driver’s license or state ID
- A voided check from your business account
- Proof of business ownership
- A month-to-date transaction records
- A copy of your business or personal tax returns
- A copy of your business plan
- A profit & loss statement of your business
- A copy of your business license
They may also request you provide the following:
- The amount you want to borrow.
- Evidence of when your business started and other general information about your business.
- Your social security number and birthday.
Apply For The Loan
One of the steps on how to get a business loan from any source is to apply for the loan after you have done all other enquiries needed. The process of applying for loans is always similar whether you are applying through traditional or online lenders. Go to the website of your preferred lender and submit your application following the instructions on how to apply for a loan for a small business. Once you have completed your application online, you will wait for your application to be approved. If it is approved, you will work will the lender to get the funds deposited in your account so as to use it to boost your business.
Time Is Important
Depending on the type of loan you want to apply for, your loan application may take days, weeks or even months before the loan will be approved. So every business owner should understand the process and be prepared to wait for the loan to be approved. The process of how to get a business loan from any source for your small business should not be complicated but creating time to complete the application process is very important. After getting the loan, it is important to be paying off your loan when it is due to be paid so that you will meet up with the loan terms.