How to Get a Small Business Loan in 4 Steps
Choosing a lender that caters to your needs and will most likely approve your loan is the hardest part. There are hundreds of thousands of lenders in the U.S., and getting the right one might require a lot of research.
After applying for the loan, funding may come after months. This is after it has been approved by the U.S Small Business Administration. The research will ensure you understand what is required. This guide will take you through 4 simple steps to apply for a small business loan.
1.Determine the Best Place to get the Loan
There are many places to get a loan. Banks, and online lenders, to name a few. Your biggest concern should be the interest rate. Is it lower? Or high? This should always be your guide before settling for any lender. Here are other factors to consider before choosing a lender.
- Can your finances back up this loan? To get fair interest rates, check out banks and SBA loans. They have crazy offers that are hard to resist. However, some rules have to be adhered to. You will need to have consistent revenue, and the business has to be operational for at least two years. Also, lenders will look at the FICO score before giving out any loan. This score has to be at least 650. If you don’t meet all the requirements, your best option is to apply for the loan on online platforms.
In case you are wondering how an SBA loan works? Here is how it is managed. First, an SBA loan is given by private entities but backed by the federal government.
For instance, if you take a loan from an SBA and default on payments, the government has to pay the guaranteed amount. In that case, the government acts as a guarantor. If you have partners, to qualify for the loan, your business partners have to guarantee 20% of their share of your loan. That way, they are all liable in case you default. SBA has several loan programs which include: microloans, 7(a) loans, and 504 loans.
- Decide on the type of funding you need. Not all lenders will have the type of loan you require. Some lenders specialize only in a specific type of loan. If you are looking forward to buying heavy machinery, look for a lender that deals with financing heavy equipment. If you require capital for an ongoing project, the best option is to look for a line of credit you can withdraw from as much as you need.
When dealing with an SBA loan, try looking for lenders you’ve dealt with before since they already know your finances. SBA lenders include Wells Fargo and Chase, community, and regional banks.
- Timing. The fastest way to get a loan when in a hurry is by looking for online lenders. In terms of processing the loan, they are fast since they have automated tools that go through applications fast. But if the loan is not needed immediately, maybe it’s needed in a couple of days, try an SBA Express loan. They take shorter periods for the loan to be granted with the same benefits offered by other federal lenders.
You can always look for loan agents to take you through the process if you have settled on getting traditional loans from the bank.
2. Ensure to Have Every Document that is Needed
Every lender has their own rules and regulations. And this means different documentation. Here are some of the forms you will be required to have.
- The details of your business. By details, I mean the name, address, and tax ID of the business and not only the basic information. The lender may ask to see the business proposal for a new business.
- The financial statement. The lender will require financial statements of the business which will include the profits and losses the business has made, the bank account of the owner and the business as well as the tax returns.
- Information of the partners. Most lenders ask for the details of the partners. This will include their names, social security numbers, and addresses. In many cases, these partners have to have shares of at least 20 to 30 percent.
- Details of the collateral. In other cases, lenders will ask you to provide collateral to secure the loan. This might be in the form of real estate, or equipment. The collateral has to clearly state its type and the amount it is worth. Get an auditor to assist in getting the exact amount of your collateral. If you are dealing with an online lender, then collateral may not be required. But for an SBA loan and a bank loan, you might require the collateral.
- Personal guarantee. In many cases, the lenders provide forms that you need to fill out. These forms contain a personal guarantee that states you are liable for paying the loan and in case of default, your assets will be used to pay the loan. The business partners might be required to sign the personal guarantee.
Consider getting an SBA loan if you are not sure what you need. A government small business loan can be confusing from all the paperwork. Get ready for documentation needed to make work easier and the process fast.
3. Go Through your Business Application Loan Once More.
Before applying, seek the opinion of another person. Have them look at your business proposal. They might have some insights that could be of help. You could also go further and seek professional advice. Seek help from sources such as the Small Business Development Centre (SBDC).
SBDCs are local centers that are in some way sponsored by the government to assist the locals in better decision-making in terms of opening and running a business. Locating these SBDCs is simple. Use tools like SBA finders to find them.
Ensure to attach everything that is required by the lender and in the right format. This will allow a quick process and eliminate the back-and-forth situation between you and the lender.
4. When Applying, Follow the Instructions of the Lender
After everything is in place, including all the documentation, it will now come down to how you apply for the loan. Take an example of an online lender platform like Fundbox, they let you link your financial accounts on their website.
But for the case of traditional institutions like credit unions and banks, applications can be made via the phone or at their branches. A bank like Bank of America offers loans for some products online but for other products, you need to physically appear in the bank or apply via the phone.
Finally, finding out the lenders’ turnaround time to assist in knowing when to expect the approval.