Business loans are an important part of every business. Although it is not a requirement in operating a business, a business loan is indispensable. It’s something that entrepreneurs cannot avoid throughout operating their businesses.
However, not all businesses are able to get approved for a loan. This is why many businesses find it hard to survive when competition is tough. Small businesses are the ones that really need a business loan. Getting a small-business loan isn’t easy, but there are steps you can use to increase your chance of getting approved. Today, we will be guiding you through the seven strategies on how to get a small business loan. Let’s get started!
1. Start Applying for a Small Business Loan Even Before You Actually Need It
Think of lenders and not only your business. When entrepreneurs apply for a loan online, a lender may have an impression that you need a loan for expansion and want to be cautious in the process as it will take time. But when lenders learn that your loan application is part of a business plan that has future effect, lenders may become more comfortable in considering your application.
Never forget that lenders are also businesses. They want to do business with people they trust. As an entrepreneur, you should also consider lenders as your partners who trust you and help you. To build such a relationship, start doing business with lenders as early as possible so you will not find it hard to have more repeated transactions with them in the future.
2. Determine Where the Loan Should Be Allocated For
When you apply for a business loan, you will have to submit a business plan that includes things that should have a corresponding budget. Lenders should know how the money will be spent. You can’t just apply for a loan online, get approved, and decide later what to do with the money. You and your lender should know beforehand where your loan should go and how it will be spent.
Buying certain equipment, business expansion, funding or a marketing campaign are all good reasons for your loan and would be considered to be business capital loans. However, buying non-productive assets, paying another debt, financing business losses, and office beautification are some of the bad reasons to apply for a small-business loan.
3. Determine How Much Money You Need
A loan would be useless if the amount ends up short for what is supposed to be spent for. On the other hand, a loan that is too large for its intended use may lead you to pay monthly with an amount that may be too unbearable for you. Before you apply for a loan online, you should decide where you should use the money, how much money you need for it, and when you should spend it. It may not also be practical to start paying for the loan that you have not yet used.
If you feel that you may or may not need a loan for your business, you may also consider unsecured business funding as an alternative to business loans. Specific lenders will have this option when other traditional lenders might not offer this.
4. Determine Your Credit Score
Lenders do not simply decide based on how you talk to them. They technically consider your personal credit scores in order for them to make a sound decision to approve your application. Here are the scores you need to know:
- Credit Score – 650 and higher credit scores are something that is a noteworthy start, although if you have a lower score it can be considered based on other factors.
- Debt to Income – Debt to income ratio should not exceed 33%.
- Length of Business – Most lenders consider a business that is 2 years old above.
5. Search for Lenders and Choose the Appropriate One
There are a lot of lenders you can find. All of them may have similar processes for applications, but they may have differences in how quickly they approve a loan application. Here are some lenders you may choose:
- Private Lenders
- Local Lenders
- Crowdfunding Sites
6. Prepare the Required Documents
When you apply for a small-business loan, you will need to submit certain documents such as a:
- Business Plan
- Business Owner’s Resumes
- Financial Statements
- Tax Information
7. Wait for the Approval
You may have a long list of lenders. Some entrepreneurs tend to apply a loan to all lenders they know to find out which of them will approve their application. This is a very risky move because what if all the lenders approve your application? You will be accountable in paying all of these loans. Apply for one loan at a time. When you don’t get approved by one lender, apply to another one. The best way is to wait for approval.
There is no standard rule that will guarantee a loan approval, especially if it’s your first time. Nevertheless, it will be much easier to apply for a loan online if you have already built a relationship with a lender. When you are able to get approved by a lender, maintain a good payment record and build trust. Check more here