Both established businesses and start up ventures frequently need capital to cover cost of goods, marketing, rent, equipment, investments, or research and development. Having working capital is crucial to any successful corporation. Capital infusions help a firm grow and expand even when it has already been established. That said, commercial loans don’t come easily, and there are quite a few obstacles that can get in your way if you have never requested a structured business loan or line of credit before.
After reading this article and with our help, applying for any type of business funding is not a daunting task. The loan application shouldn’t scare you anymore. Here are the easy steps to getting a business loan:
This would most likely be the first question a potential lender would put forward. Even if your business is well-established, the lender will want to know where your the money will be going. Therefore, have a response well-prepared in advance. Maybe even prepare a funds sources and uses chart. (Email us and we can send you one)
Business can be either secured or unsecured and could be used for various reasons – such as mergers & acquisitions, renewable energy infrastructure setup, or simply just to have a line of credit open just in case a great opportunity arises you always want to be prepared to seize. Secured is when there is collateral tied to the loan and unsecured is when there is no collateral such as a credit card. The purpose of your loan would determine how much money the lender is willing to extend along other factors. It’s essential to have a business plan prepared, to help the lender assess your ability to begin paying off the loan.
Be clear regarding your loan request by preparing a Business Plan or executive summary you can attach to your application.
Know Your Credit Score
Your credit score will also be a determining factor in the kind of loan you qualify for, as well as the amount. Get a credit report from any major credit bureau before meeting with lenders. Its easy! Getting your credit score is free and there are even free apps that monitor your score and can even notify you via text message when there are any changes or inquiries. If you pull your score and you see any discrepancy it is easy to open a dispute so the discrepancy and negative comment can be removed and therefore improving your score.
Its important to always pay your debt on time, don’t over spend if you can’t afford it, and always try to keep your credit usage under 30% of the total available credit limit.
Preparing Your Documents
It’s now time to put in a loan application. What? How? Where do I start? First, don’t start apply for different loans at the same time as this will affect your credit score and the second and third lender will know the previously lenders who have already pulled your credit score as it will be on the report. A good lender will make a loan based on your needs not the other way around. You should only be going to ONE good lender.
Depending on the nature of your business loan, here is a general document checklist of the specific documents you will need to provide.
- Business Plan or Executive Summary (It can be a short one page description depending on the loan type).
- Color photo copy of all principle’s drivers licenses who have more than 20% interest in your corporation
- Professional Resume on all principles who have more than 20% interest
- Corporation formation documents along with any amendments
- 2 – 3 year of personal and business tax returns (Make sure the signed copies are signed and dated)
- Up to 6 months of personal and business bank statements
- Company financial statements (cash flow statements, balance sheet and profit and loss)
- Any documents supporting the nature of the loan request such as a sale and purchase contract, proof of property ownership if for a construction loan, agreement to purchase equipment if an equipment loan, agreement to acquire and merge with another company if M&A Financing, a fulfillment order if looking for a line of credit, etc.
Kindly note, lender may visit your business website and possibly even visit your personal social media accounts as part of their due diligence. The underwriting process can take up to 72 hours depending on the complexity. For international financing deals the time frame may be extended. Take your time and make sure everything is neat, professional, and accurate.
It’s important to consider the various lending choices available in order to pick the best-suited option for you. You can visit your local community bank, credit union, SBA, or a larger bank but today there a just so many options.
Besides conventional lenders, unconventional lenders are also a viable option such as hedge funds, micro lenders, private lenders, and merchant cash advance loans. These lenders even provide small-business loans and also personal loans. Each lender has their pros and cons.
It is important to evaluate your situation so we can customize a loan for your individual business needs.
Focus on the Right Loan Type
Just as you should know the purpose behind the loan before emailing or calling your lender, you should also be clear on the kind of loan you need. If you are just starting or only in the first year of business, getting a loan could be difficult. Lenders typically look for historic cash flow to justify the loan, and determine the risk involved for themselves. This can make it difficult for a start-up to get financing through the conventional routes.
Alternative options include using credit cards, borrowing money from family and friends, personal loans, crowdfunding, or microloans, but these all come with their own set of risks. If possible, borrowing money from friends and family may seem like a good option but don’t settle and find a lender who have capital available regardless of a businesses stage.
Besides wanting to know how long you’ve been in business, lenders also want to know your business revenue, and how much you project your business will make in the future. Its important to spend some time and creating a projection chart going out 6 month, 12 months, 3 years and up to 5 years. Being prepared and seeing that you have thought about your company’s future is important to the lender. Know your financials!
Certain lenders may require monthly or even weekly payments. Make sure your business is liquid enough to adhere to such repayment requirements. It is important to know what you can and can not afford.
If you want a business loan at a prime and affordable rate and as quickly as possible, make sure you have prepared and thought everything through beforehand and you complete your due diligence.