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Steps To Getting A Business Loan – Mike Lucas Reviewed by Elisa Moores, Managing Editor of Fast Capital 360 Updated August 18, 2022
Getting a business loan or other financing and securing that financing at the best rate is not as difficult as one might think. It all starts with learning the right option for your small business.
Steps To Getting A Business Loan
Doing your research and due diligence before applying for a small business loan is essential and will help you determine which financing options are right for you – now and in the future.
Steps To Apply For A Business Loan In Malaysia
Want to know how to apply for a small business loan? Follow these 5 steps to get a small business loan:
Why do you need external financing? Do you need a loan to start your small business or cover everyday expenses? Do you need capital to expand your company?
Here’s why small firms are applying for financing in 2020, according to the Federal Reserve Bank’s Small Business Credit Survey:
Determining why you need a business loan can help you decide which financing options are right for your needs and take the steps to apply for a business loan. The following financing options can meet a variety of business needs; for example:
How To Get A Business Loan: 6 Steps To A Strong Application
Many business owners interested in applying for financing ask, “How much financing can I get?” A better question is, “How much should I borrow?”
If you have a vague idea of how much your company will need to cover short-term expenses or projects, you may end up borrowing (and paying interest on) more financing than necessary.
On the contrary, some business owners are very conservative when asking for a loan. Don’t underestimate the amount of capital you’ll need: This could jeopardize your company’s financial stability.
Know what you are asking for and what you need before you take the step to apply for a business loan.
Quick And Easy Steps To Get A Business Loan
Not all small business lenders are equal. Indeed, certain metrics and scores separate highly qualified businesses from those that are risky for financing providers. The key to getting approved for an affordable business loan is for lenders to prioritize your business.
Just like your personal credit score, your business credit score is an overall picture of your business’s financial health and how well you manage its debt obligations. Credit reporting agencies use different scales to rate businesses. For example, Dun & Bradstreet (D&B), Experian, and Equifax rate businesses on a 0-100 scale, while FICO uses a 300-850 scale for its business credit rating. Note that you need at least an 80 or 90 out of 100 for a “low risk” borrower. According to Experian, a good FICO credit score is in the range of 670-739, and a fair score is between 580 and 669.
Because it can take some time for a small business to build a strong credit rating, many lenders look at other qualifications — some even look at personal credit scores.
What is a good credit score for a small business loan? It depends on the lender and the type of financing. Many conventional institutions like banks and credit unions want to see a minimum credit score of 670, but other alternative lenders may accept applicants with fair or poor credit scores.
Best Banks For Business Loans
In addition to your credit score, lenders also look at your credit history. For example, do you pay your debts on time? How much funding has your business received in the past? What are your current debt obligations?
Another important metric lenders use to determine creditworthiness is your debt-to-income (DTI) ratio, which helps lenders gauge your business’s overall financial health and ability to pay off additional debt.
If your debt-to-income ratio is too high (lower than 35%, but ratios as high as 50% are still good for businesses in some industries), most lenders may view you as a poor candidate for a business loan. .
How long you’ve been in business will affect if you apply for a business loan. Generally, online and alternative lenders want to see that your business has been in business for at least a year. Banks and credit unions typically don’t like financing businesses that are less than 2 or 3 years old.
Get A Business Loan The Step By Step Guide
Your business income will be considered when you apply for a business loan. Requirements vary depending on the lender and the type of financing you want. Depending on the financing product, some lenders will approve businesses with less than $100,000 in annual revenue. For other financing options, lenders will not approve businesses with less than $250,000 in annual revenue.
A long-term bank loan is not your only financing option. Here are 4 of the most popular small business financing alternatives:
Many financial institutions do not offer small business loans because they are too risky (such as insufficient income, time in business, bad credit or no credit). However, SBA loans are collateralized loans backed by the Small Business Administration (SBA), which makes them a less risky investment for lenders.
These low interest loans are provided by commercial banks, finance companies and non-profit lenders. A federal agency will guarantee a portion of a small business loan on your behalf. Interest rates and loan fees are limited, making SBA loans one of the most cost-effective ways to finance small businesses.
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Business lines of credit are a convenient financing option. A line of credit can supplement a conventional loan by acting as a backup source of cash that can be used in case of need.
If your business operates in an industry that relies on equipment, such as the medical or construction industries, you may be eligible for equipment financing. Banks and other lenders can lend you up to 100% of the equipment’s value, which you then pay back with interest.
One of the main advantages of equipment financing is lower interest rates. Since equipment generally secures the loan, interest does not accrue because you have no collateral.
Some new entrepreneurs think they should get a small business loan from a large national bank. However, you are more likely to be approved if you ask for a smaller, regional bank.
How To Get A Business Loan In A Few Simple Steps
When considering how to get a small business loan, consider other options from credit unions, nonprofit financiers and alternative lenders, including online marketplace operators like Fast Capital 360.
Loan approval rates improved in 2021 as the economy recovered from the pandemic-induced downturn. As of July 2021, institutions have the following approval rates:
Before applying for a business loan or other form of financing, make sure your company’s financial records are organized and accessible.
You must also provide proof that you are the legal owner of your company, for example:
Steps To Get A Business Loan
When you’ve narrowed down the type of loan or financing option that’s right for you, you’re ready to apply for a business loan. You need to start the app. In general, a loan officer will be your first point of contact and go-to for all things related to your loan.
After your small business loan application is complete, you should prepare to meet face-to-face with a loan officer at your financial institution.
You explain your intentions and why your business can be trusted with money. So be prepared: come with a rehearsed pitch and an organized business plan.
Allow 10-15 minutes to review your planned capital expenditures and profitability roadmap. Your presentation should begin with a summary that quickly outlines the key talking points and your company’s competitive advantages.
Here’s Your Step By Step Guide To Getting A Business Loan
However, if you are looking for an online lender, you can speak to a counselor over the phone or email to complete the entire process.
Getting a small business loan from a bank, especially a large business, can take anywhere from a few weeks to over a month. However, small, regional banks take much less time to process an application for a small business loan.
If you apply for a business loan online, the approval process is usually much faster, with some lenders approving loan applications within hours of receiving them.
Online lenders make the loan application process quick and easy. Generally, the requirements of alternative lenders are not as strict as banks and credit unions. For example, if you’ve only been in business for a year and don’t have a long credit history, you can still apply for an online lender. On the other hand, a big bank usually doesn’t like businesses that haven’t been in business for a long time or don’t have a strong credit history.
Simple Steps To Get A Business Loan
If you want to apply for an online business loan, you have several options, including the options mentioned above, as well as the following:
Short term loans are a great choice if you know you will get a quick return on your investment. For example, a good use of short-term credit is to purchase inventory before your busy season.
Short-term loans are typically 18 months or less. You can still borrow medium to large amounts (up to $500,000), but note that shorter repayment terms often mean higher payments.
This type of financing involves a one-time cash infusion in exchange for a share of the company.
