Have a great idea for a small business, but don’t know how to find the money to start it? Here’s everything you need to know about how to get a business loan.
With nearly 28 million small businesses in America, the process of understanding how to get a business loan is easier than it’s ever been.
Are you ready to take the exciting leap towards entrepreneurship? No matter what product or service you want to sell, there’s a way for you to secure the capital you need to get started.
Let’s get into what you need to know!
Get the Basics Nailed Down
First things first, you’re going to need several documents and numbers to get started. Each lender will naturally have different requirements, but you can expect a few essentials from each of them.
Your credit score is crucial to getting a solid business loan. While it doesn’t need to be perfect, you want it to be a high as possible. You definitely want your score to be above 600, but ideally, you should aim for 700+.
Remember this: the higher the score, the less interest you’ll be paying on that loan!
Time in Operation
How long has your business been open? If you want to know how to get a business loan, know this: the longer you’ve been in operation, the better. That’s because you can demonstrate that you can tolerate difficult times, especially if you’ve had long-term success.
Personal and Business Tax Returns
It may come as a surprise, but yes, your personal tax returns are also part of business loan requirements. After all, lenders want to make sure that you are trustworthy and responsible with your finances.
Business Bank Statements
Want to know how to get a business loan when your business is just starting out? You’ll want to have meticulous records to back your spending.
To get approved, most small business lenders want to determine that you can afford your loan and pay it back. The bank statements provide wonderful insight in determining how responsibly you manage your money.
Craft Your Business Plan
Some lenders may require proof of a business plan, but even if they don’t, it’s always a good idea to have one on hand.
If your business idea is only in your head, the plan helps you decipher how you plan to get it out into the world.
Your business plan is your “blueprints” outlining all the nitty-gritty details of your business’s goals, revenue, competition, and mission.
If you don’t have one drafted out, it’ll be nearly impossible to determine how much money you’ll need for your loan (and what you’ll actually be using the loan for).
Find the Right Loan
Before determining how to get a business loan, you need to determine what loan you want.
First of all, know this: if it’s your first year of business, it’s nearly impossible to secure a loan. Most lenders want to see a cash flow to support loan repayment. You’ll have to rely on other means of support during those initial times.
If you don’t have other means of support, you may want to consider applying for a personal loan or nonprofit lender microloan.
If your business is established, you have a few options.
These loans are designed for inventory purchases and operating costs for working business needs. They are short-term loans that extend available cash in your business checking account. They usually carry the lowest interest rate.
Installment loans entail paying back monthly, quarterly, or annual payments that cover both principal and interest (similar to a mortgage). If you pay it back quickly, you’ll receive an adjustment of interest rates.
With these loans, you receive the full amount at the beginning. You pay off the interest throughout the loan duration, and you pay the principal on the final day.
These loans are intended for when businesses must wait until a specific date before receiving payment from a client.
Secured Vs. Unsecured Loans
Secured loans have collateral attached to them. The lender will use this collateral to pay off the loan if you default. Unsecured loans, on the other hand, do not have collateral attached to them.
With that said, new businesses will typically not qualify for unsecured loans that’s because you don’t have any proven record of success and profit yet.
Determine the Right Lender
When it comes to knowing how to get a business loan, it’s not always what you know but who. With that in mind, choosing the right lender is important for any entrepreneur.
If you want to go the traditional route and get a loan through a bank, you should have a solid credit score, the ability to provide collateral and patience (as the processing will take time).
If you want to know how to get a business loan without all the hoops traditional banks require, you may want to consider going online.
Typically, you won’t need collateral, and you don’t need to be an established business, either.
Online lenders can provide small business loans, and the approval rate tends to be higher and faster than traditional banks (sometimes within 24 hours.)
Find out how an online lender can help you.
Microlenders are beneficial when your company is too small or too new to qualify for a traditional loan. You’ll probably have a higher APR, and the application may require a business plan as well.
Final Thoughts on Knowing How to Get a Business Loan
Starting your business can be both exciting and frustrating! Entrepreneurship is not for the faint of heart, but with the right strategies in mind, you can be well on your way towards success!
Are you interested in learning more helpful business tips and strategies? Be sure to check out our blog today!