Business loans can be beneficial to small businesses, when it comes to helping them get a new goal off the ground. Though, the process of obtaining a business loan can be tricky and confusing, since the goal is to provide a small company with financial help to handle its operations. Getting the wrong loan could have a business struggle to pay it back. Not to mention, with over 5,000 lenders offering over 12,000 business loan products, getting a loan isn’t easy.
However, there is good news! By understanding the bank, CDFI, or financial institution that you interact with, you’ll eventually find the right loan(s) for you. With that said, here are 6 tips on smoothly navigating through the business lending process:
When considering a business loan, make your preparations first. The time frame for application and funding can range from 1 business day to about 3 months, depending on the type and size of the business loan that you want. Therefore, it’s best to do your research and prepare to get a loan beforehand.
When researching a loan provider, consider the following objectives:
- The type of financing that your small business needs
- The type of lender that you apply with, AND
- The uses that you want a business loan for
“Don’t wait until it’s too late to apply,” adds Holt. “Understand your company’s financial needs, and apply now.”
A small business owner should know all the credit options available, so that they can make the best choice for their company. With small business loans varying, along with their attached terms and fees, it’s important to know all your financing options. By knowing your options, your small business can make smart decisions that will help out with obligations and growth.
Know Your Credit History
When applying for business loans, you have to know your credit history, PERIOD. Loan providers won’t grant loans to people and businesses that have a track record of not paying off debts, not paying on time, etc.
When learning your credit score, it’s divided into 5 factors:
- Payment history (35%)
- Credit utilization (30%)
- Credit age (15%)
- Account mix (10%), AND
- Credit inquiries (10%)
With payment history and credit utilization make up most of your score, you can improve your credit score by paying bills on time and using less of your approved credit line. Plus, lenders want to see a score of 620 or higher in order to approve a loan.
Demonstrate Financial Responsibility
Banks want to see sufficient cash flow from existing businesses, along with on-time monthly payments. Plus, banks will look at your past tax returns and existing debt, even if you’re a new business owner. Ensure that your financial plan clearly illustrates your ability to make your monthly loan payments.
No Two Banks Are Alike
All banks and institutions are different, period.
While large banks often cater to bigger clients (especially those with a reputation of turning out large profits), smaller banks often issue small business loans to smaller clients. But the most unique difference between the two is that small banks are built upon personal relationships, allowing clients to make their personal cases on why they need a business loan, thus establishing a relationship between banker and client.
Consult Loan Experts
While asking a lender for $100,000 to grow your business is one thing, meeting with your financial advisor, accountant, and board of directors is another. In fact, your financial advisor might suggest that you need somewhere along the lines of $103,000 to expand production and lower the cost of goods sold. They want to see a specific plan in place, and why you’re asking for a specific amount in loans. So, don’t be afraid to ask for help, if you need help figuring out the loan range. Consulting an expert helps you fully understand your financial situation.
With so much to take into account when seeking financing for your small business, it’s important to understand your options, along with the processes that go with them. And, as always, don’t be afraid to seek professional help, if you’re stuck on a step in the process, or if you need further advice on your venture to get financial assistance for your small business.
George J. Newton is a writer and editor at Write my thesis and Phd Kingdom. He is also a contributing writer for Origin Writings. As a business development manager, he oversees various sales departments – from workflows to practical business practices.