Here’s Your Step-by-Step Guide to Getting a Business Loan
Many business owners work hard to self-fund their companies and avoid getting business loans.
It can be difficult to get a business loan when you’re just starting, anyway. But a loan could open many doors for your business – you could use it to expand operations, update your equipment, or solve cash flow problems related to late payments from customers or seasonal fluctuations in revenue.
If you’ve never gotten a business loan before, the process can be intimidating. But it doesn’t have to be. Follow these steps to get the funding your business needs.
Look Into Your Options
There are lots of loan options available to small business owners, and lots of lenders to choose from. So, the first step is to look into your options in terms of lenders and types of loans available.
Start by considering what you’re going to use the loan for. If you want to expand your small business or upgrade your equipment, a traditional small business loan backed by the SBA might be ideal. If you need to borrow money to cover daily operating expenses, consider a business line of credit or a business credit card. If you need to fund a startup, have bad credit, or need the funds quickly, you should consider a short-term loan or a merchant cash advance from an alternative online lender. Make sure to compare interest rates and repayment terms for different loan products and lenders before you make a final decision.
Make Sure You Can Handle Repayments
The rule of thumb when running a business is that you should be bringing in 1.25 times your total operating expenses in revenue. That means if your business brings in $10,000 a month, and your operating expenses are $6,000, you can afford $2,000 a month in loan repayments. Remember that some alternative lenders require daily or weekly repayment schedules, so you may be making many payments each month.
Get Together Your Documentation
Online lenders may not require as much documentation for small business loans as traditional lenders, and they’re less likely to require collateral, too. You may need to prepare a business plan or a proposal outlining how you plan to use the money, as well as basic information about your business. You may also need to prove your business income using profit and loss statements, bank account statements, and tax returns. You’ll need to provide Social Security numbers and other information for all of the business owners. You may need to sign a personal guarantee and put up collateral.
Once you have all your documentation ready, you can apply for your business loan. If you go through an alternative lender, you can apply online and get approved right away. Banks and credit unions giving more traditional business loans will make you apply in person at a branch or over the phone. If you need help preparing your loan application, go to your local Small Business Development Center to get assistance. They can help you make sure that you’re providing everything the lender needs and that the loan application is formatted correctly. The more you can cut down on the interaction between you and your lender during the underwriting process, the faster you will get your loan funds.
Read Your Loan Agreement
You should always read contracts before you sign them, including loan agreements. Your business loan agreement spells out the terms of your business loan, including how much you’ve borrowed and what your repayment schedule is. Interest rates, fees, penalties for late payments, and payment amounts should also be outlined in the loan agreement.
Review your loan agreement carefully and note any questions you might have for the lender. Again, seek help from your local Small Business Development Center if you need it, or reach out to a business attorney. Contact your lender for answers to any questions you might have or clarification on confusing points. Once you’re satisfied, you’ll sign the loan agreement and return it to the lender.
Get the Money
Now that your loan is approved, you can get your money. These days, lenders typically disburse loan amounts by direct deposit. You can get your loan money deposited into your business checking account.
Don’t be intimidated by the prospect of getting a small business loan. It’s easier than ever to borrow money for your business. As long as you can afford to make the repayments, a small business loan can benefit your business. You could get the funds to expand, update equipment, cover day-to-day operating expenses during a slow period, and more.