6 Crucial Steps Before Getting a Small Business Loan

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There are instances when a small business would need financial assistance. Whether it’s for a much-needed expansion, product research and development, or investing in new equipment, one of the fastest ways to obtain new funds is to apply for a small business loan.

There are different options available like the small business funding at Lendza. However, before you start sending out applications, keep in mind that knowing the steps involved in the application process will significantly improve your chances of getting approved, and that’s exactly what we are going to share with you in this quick guide.

Small Business Funding Options Available

There are different choices available. In fact, there are even options that you can turn to during the initial stage of deciding how to start a business and determining where to get the needed capital. Here are some of your loan selections:

  • Small Business Line of Credit. This is a type of loan where the credit company will provide you with a set amount that you can access as needed. This is great for irregular expenses that can’t be estimated beforehand. 
  • Accounts Receivable Financing. Are you expecting cash inflow soon? An accounts receivable financing option will base your credit limit on the amount that you are anticipating and will be paid off once this amount is received. Think of it as a type of payday advance, but for small businesses.
  • Small Business Term Loan. For those in need of a lump sum for bigger expenditures then this is the loan option for you. It is usually available in a fixed amount and can be paid off within six months up to three years. There are various terms available according to your chosen lending company. There are those who offer secured or unsecured loan terms, and its interest can either be varied or fixed. 

There are definitely other loan options out there but the three that we have featured above are the most common loan options that small business owners go for.

Related: Should You Kickstart Your Business With Payday Loans?

There are different financial institutions that you can borrow from.

Speaking of selecting the right lending company, there are also different financial institutions that you can choose from. These institutions are usually divided into three categories:

Online Lenders

This has got to be the most popular lending option right now thanks to its convenience. You can process your entire application online, regardless of where you are and what time of day it is. They also provide 24/7 client assistance and multiple online payment methods.

Storefront Lenders

These are lending companies that have an actual brick-and-mortar office. They may not be as convenient as online lenders as they would require you to visit their office and process your application personally, but they definitely present a benefit for borrowers who prefer to have human interaction.

Banks

Finally, banks offer small business lending options as well. Their main benefit is that they usually have an idea of their clients’ financial state making it easier for their account holders to get approved. Unfortunately, this can work against you too if your accounts are less than impressive.

There are other institutions and organizations that provide loans aside from the ones we have mentioned above. In fact, there are even government agencies that provide financial assistance to small business owners. Feel free to research these options as well.

Will you get approved?

After determining the loan option you need as well as the lending company that you want to apply from, it’s time to assess your chances of getting approved. Financial institutions will base their decision on the following factors:

  • Your credit score
  • Outstanding loans
  • Current cash flow and business activity
  • Business assets
  • The length of your business’ existence
  • Your investors’ profile
  • And other financial statements

Get your financial records and business information ready.

Since your financial records will be thoroughly scrutinized, it wouldn’t hurt to get them in order. Take a look into your credit report and check if there are erratic entries. Make sure that everything is updated and accurate.

A lot of lenders also prefer reports that have been audited by a certified public accountant but make sure to check with your chosen lender first if this is indeed required to save yourself from unnecessary auditing fees. 

Be aware that your lender might also perform a background check on you and your business. Clean up and make your online personal and business profiles as professional as you can. In fact, we recommend going as far as deleting social media posts that might make you look irresponsible and unreliable. 

Prepare to be interviewed

Once your documents are ready, it’s time to mentally prepare yourself to be interviewed as well. Most likely, your chosen lending company will ask how much you need, where you’re going to use the funds borrowed, and how much profit you’re expecting to receive from the proceeds of your loan. 

Your lender might also require a security interest in the form of company assets. Providing them with one will increase your chances of more favorable terms since it lessens their risk of not getting paid back. There are also instances that one will require a personal guarantee. This might also reap the same benefit. 

We don’t recommend it, though, since it will put your personal assets at risk. It’s best to avoid this from happening as much as possible to protect your personal financial stability should anything happen.

Finally, review your approved loan terms

Be sure that you completely understand the interest rates and when they are applied. Determine the terms of your security deposit. And of course, don’t forget to schedule your due dates to ensure that you don’t miss a single payment.

To wrap up, we hope that the steps that we have shared with you have helped you gain insight into what you can expect from a small business loan application process, and in doing so, help you get approved in the terms that are most favorable for you and your business. 

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