The availability of funding is integral for running a business. Although big corporations have no trouble seeking finance, small businesses have a much harder time. If it is your first time applying for a small business loan, you might not even know what to do. Chances are that you feel overwhelmed. Fortunately, there is no need to worry as we have created the ultimate guide to help you out every step of the way.
Do You Need To Borrow?
Before we cover how to get loans for small businesses, it is important that you determine whether you need a loan in the first place or not. Even though every small business can always use more money, it is not reason enough to take on a loan. You have to make sure that you actually need a loan. Some of the situations where getting a small business loan is worth considering includes an emergency, a need to hire new staff, a drop in sales period, an inability to buy new equipment, and a cash flow shortage.
5 Steps to Follow for Small Business Loans for Startups
1. Determine How Much Money You Would Require
The first thing that you need to do is determine how much money you actually need before you approach any lender. The questions mentioned below will help you get an idea about the amount of funding you require.
► Where the money would be spent?
► How would the funding be repaid and managed?
► How much money would you require for ensuring sustainable long-term growth?
The best way to answer the above questions is by developing a business plan. You might even have some of the documents needed for creating an outline for the objectives. It is vital that you determine your current position and the milestones that you plan on achieving in the coming years. Make sure to focus on business finance and how it can help you out.
Moreover, new businesses have no option but to create a business plan. It would serve as a strong supporting document for your application. Besides, most lenders require you to provide a plan. If you work with a reputable lender, they might even provide a business plan template that you would just need to fill out. Here are some of the things that you can record when filling it out.
Short-Term Objectives
► Increase customer base.
► Boost monthly sales by a certain percentage.
Long-Term Objectives
► Hire more employees.
► Relocate to a better office.
► Increase the net profit by a specific amount.
Experience and Skills
► Increasing customer base.
► Boosting brand awareness.
► Launching new products or services.
Investment for Resources
► Software subscriptions.
► Purchase of outreach technology.
► New company website and branding.
► Building a content management system.
► PPC campaign for promoting products or services.
2. Determine Your Preferred Finance Options
The next thing that you need to do is evaluate your preferred finance options. After you have an idea about how much funding you require for achieving all your goals, you have to consider your borrowing options.
If you require a boost of capital for a short period of time such as for purchasing inventory or equipment, you would need different financing in comparison to the cost incurred for acquiring a company. You have a number of business finance options to choose from.
The fact is that most businesses have no idea about what is even available before they apply for a loan. This can prevent you from taking advantage of the best option. Here are some of the options that are available.
Loans from Banks
► Equity funding
► Asset financing
► Peer-to-peer lending
► Property development loan
► Enterprise Investment Scheme (EIS)
Commercial Loans
► Bridging loan
► Trade finance
► Working capital
► Secured business loan
► Unsecured business loan
► Grants and development loans offered by the government
As you will come to know, there are plenty of options that are offered. It is important that you consider each of the options in order to determine which one is best for you. Now, you also have to consider whether you would even be able for the loan type or not. It is best that you eliminate options that you are not eligible for to save time and boost your chances of getting approved when you apply. It will also ensure that you maintain a decent credit score. You should consider the following in order to determine which finance option to select.
► Is there any better option available for seeking financing?
► What is the total cost of the loan after accounting for the accumulated interest?
► Do you need to pay any additional costs such as repayment charges, late fees, and processing fees?
After you have decided which type of finance option would suit you best, you can proceed by exploring the market to determine which lenders are worth considering. Create a shortlist and compare the options to evaluate which provider to go with. Due diligence will go a long way in helping you out.
3. Review Your Credit Profile
If you have not checked your business credit profile, it is about time that you did. Since your credit score measures how creditworthy your company is, you have to make sure that you have a good credit score. It is based on your financial history, supplier payment times, loan repayment history, and credit accounts. You have to ensure that your credit score does not prevent you from seeking new business loans.
A poor credit score reveals that your business has poor financial health and has missed payments. It would make your business unattractive to lenders and you might struggle to get a good deal. The bank would also ask for security to ensure that you would return the money. Generally, it is important that you pay attention to your credit profile as future clients or investors are likely to check it out. You can improve your credit score by making sure that you do not miss out on any payments during the last six months of the bank statement.
4. Prepare Your Small Business Loan Application
When it comes to small business loans for startups, you must make sure that you have prepared the perfect application before applying. In addition to your business credit score, there are other factors as well that influence how lenders view you. The truth is that running a business is complicated and you have to ensure that it is translated into the application in the most professional way possible. Here are some of the documents and the information that you will need to provide to get approved.
► Business Plan: To reveal your long-term growth strategy and financial forecasts.
► Business Credit Score: You also have to include your business credit score and report along with your application.
► Business Valuation Figures: Calculate the market value of your business.
► Company Statement: Cash flow statement, balance sheet, and income statement.
► License and Registration: If you are a licensed professional, you would also have to prove that it is legitimate.
► Legal Documents: The core company contracts and the employment contractors.
► Tax Returns: You also have to provide your tax returns to determine whether you have earned more or not.
►List of Assets: As you would need to provide collateral when you take a loan, you have to provide a list of assets that includes inventory, vehicles, buildings, equipment, and land.
5. Apply for the Business Loan
Now that you know everything there is to know about loans for small businesses, it is important that you get ready to apply for a business loan. It is crucial that you proceed with the application process to get the funding needed to keep your business afloat. Keep in mind that every lender tends to be different. This is why the process might be somewhat different. Here is what you can expect.
Online Bank Application
► Complete the online application form and provide digital copies of all the essential documents.
► Receive the decision and the quote for your borrowing amount.
► Connect with a lender to discuss the application in detail.
► Provide any additional documents if asked.
► Accept or decline the offer you get from the lender.
Face-To-Face Loan Application
► Request an appointment with the finance provider.
► Gather all the documents including the financial statements and business plan.
► Present the application to the lender to get approved.
► Follow up with additional documents if there is a need.
► Wait for a decision to be reached about the application.
► Go through the result and the borrowing options available.
Obtain a Small Business Loan from Clean Sweep Financial
Now that you have a better idea about what to expect from seeking a small business loan to start or expand your business, you can reach out to us. We approve business loans of around $50,000 to $500,000 as long as your credit score is at least of 680. In addition to this, you would be delighted to know that there is a One-page application and same-day approval. Thus, you should have no trouble getting your loan application accepted.
