If you have a small business and you’ve decided to expand, get some new equipment, more inventory, or hire extra hands, a small business loan can be a great way for your company to grow and get ahead. Today, there are more options than ever for finding a lender, especially online.
So where do you start? Here's a breakdown of the steps you'll need to take to get your funding as fast as possible.
1. Get your papers ready
Countless people apply for small business loans and the process can sometimes feel like jumping through hoops. Try to get the right documents together in advance so that you're prepared with everything your lender needs. Luckily, most loan applications ask for more or less these same things:
- Your current and former business and personal addresses
- Your resume
- A comprehensive credit report
- Any criminal records
- A report of any debt
- Financial reports and tax info
- A breakdown of the funding you need
- Your plan for the money
You’ll also need to show documents related to your business, such as your lease contract, licenses, franchise agreement if you have one, and examples of monthly expenses. If you can put up collateral for the loan, bring all relevant documents to the meeting with your loan officer, such as any appraisal documents proving the value of the assets you are using.
2. Prepare a business plan
Your business plan is your opportunity to present your case in a professional, clear and well-detailed manner. You should consider preparing some simple visual aids, and be ready to answer these questions:
What type of business are you running?
Create an overview of your company and what you do that makes your business unique. Be able to show who your suppliers are, the makeup of your customers, and any plans you have for increasing your clientele. What competing businesses operate in your area and what’s your edge over them?
How’s your business doing?
The lender wants to see your business' financial data to make sure you can repay the loan, like estimates of expenses, expected sales, and costs. Include a break-even analysis, cash flow projections, and tax returns for the past 3 years. Also, show your accounts receivable and payable, balance sheets or profit and loss statements, and bank statements from the last year. The lender will want to know how you plan to have the revenue to repay the loan.
How do you plan to use the money?
You need to show how the loan fits into the long-term goals of your company and how it can promote growth and revenue.
How much money do you need?
Come up with a figure and stand by it with your goals and revenue projections.
How much debt do you already have?
If you have any outstanding loans, the lender will want to understand and evaluate it, and it could impact your chances of receiving a loan. Send documentation for your other debts and how you plan to repay them, and explain that this won’t interfere with your ability to repay the loan. If your debt-to-income ratio is high, you may need collateral, excellent credit, or both, in order to get a loan with good rates and terms.
Who’s on your team?
Provide lenders with a close look at your workforce, the management of your business, and how you’re qualified to help them reach their potential so that your business continues to grow. If you pay several salaries, lenders will want to know this is a good investment for your company and that your business has firm legs to stand on.
3. Budget accordingly
Once you’ve received your loan, it’s crucial that you budget the monthly payment and any fees, interest and taxes into your monthly or quarterly expenses. When the funds come in, it's easy to spend. It can be harder to pay back the loan when the time comes without planning in advance with a clearly outlined budget. By the time you've received the loan, you've already pitched your plan to the lender, so stick with it and budget any bumps in the road into your plan.
Stick to the budget and you will be on your way to growing your company. Learn more about leading business loan providers by checking out these in-depth reviews.