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It’s not easy to get a small business loan. You have to have your finances in order and prove to lenders that you’re not a credit risk. And that means preparing a strong business plan, producing a lot of documentation of your financial situation, beefing up your credit score, and perhaps even putting up collateral.
In order to succeed at getting a small business loan, you need to know what to expect from the process. It can take a long time and a lot of paperwork to get a traditional small business loan from a bank or from the Small Business Administration (SBA). Here’s what you need to know to get the loan product you need.
Know Your Business Plan
A business plan is one of the most important documents you can present to a lender when you’re applying for a small business loan. A business plan describes your company and the products or services you offer in detail.
It provides the nitty gritty of your company’s financials, including your projected income over the next year and your operating budget for the next year, as well as your revenues and profit margins. Some lenders may require you to also submit a loan proposal, which details your plan for the money you want to borrow.
Beef Up Your Credit Scores
In order to get a traditional small business loan, you usually need to have been in business for two years, by which time you should have a strong business credit score. You can improve your business credit score by getting a business credit card and using it, while keeping your credit utilization ratio below 30 percent.
You can also establish strong trade relationships with suppliers and vendors. If you need to build your business credit score, you can take out loans from online lenders that report to credit bureaus.
Consider the Type of Loan Product You Want
There are so many different kinds of small business loans available to business owners today that it’s worth thinking hard about what kind of loan product is best for you. Do you need a business credit card to make day-to-day purchases important to the operation of your business?
Maybe you’re not sure how much money you’ll ultimately need – in that case, a business line of credit might be more appropriate. If you need money fast, an online lender can help. If you want the best rates and the best loan repayment terms, you might want to consider a traditional loan from a bank or an SBA loan.
Produce Your Documentation
If you’re getting a traditional loan from a bank or from the SBA, you’re going to need to produce a lot of documentation to show lenders that you’re worth loaning money to. You’ll need to produce copies of your business plan and your loan proposal, if the lender requires a loan proposal.
You’re going to need a statement of purpose. You’re going to need to produce all kinds of financial documents, including bank statements, balance sheets, and income statements. You’ll need to show your business license, contracts, and permits. You may even need to produce documentation of your personal finances, like bank statements.
Shop Around to Different Lenders
Don’t go with the first lender you talk to, even if they seem enthusiastic about you and you feel the same about them. Different lenders are going to offer different terms and interest rates, so it’s worth shopping around for the best deal.
Different lenders also tend to offer different loan products, so if you’re interested in a non-traditional loan product, like a short-term loan or a business line of credit, you’re going to need to talk to alternative lenders.
Consider Putting Up Collateral
You might need to put up collateral to qualify for a small business loan. If you’re using the money to buy equipment, you could put up the equipment for collateral. You can also put your business location up as collateral if you own it. Otherwise, you might put up personal property, such as your home, as collateral on a business loan – but make sure you’re able to repay the loan if you’re going to risk your personal property as collateral.
A small business loan could be just what your company needs to take things to another level. You can expand your premises, buy more equipment, or develop a new product your customers will love. No matter what you do with your business loan money, it’s going to help you grow your business – and that’s always worth it.
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