Starting a business is exciting and expensive. Many business owners don’t have the money to start up on their own, so they look for a loan. There are countless small business loans out there that can help you buy equipment, rent office space and start advertising your business. However, navigating the process of applying for and receiving a loan can be complex.
In this article, we’ll review the basic steps you need to take to find, choose and secure your small business loan so you can get your new business up and running.
- Decide Where to Apply
The very first step is determining what will be the best business loan for you. This depends on a variety of factors, such as the type of business you’re opening, your credit history and how much you can offer as collateral.
Some of the most popular business loans come from the Small Business Association, which was created to help business owners start successful companies. These loans are popular because they typically carry low interest rates, but they do have strict requirements for qualification.
You also have to consider which sources can loan you money for the specific items you need. For example, if you’re opening a bakery and will need lots of specialty equipment, you might have to look into specialty lenders that offer equipment financing.
Finally, you have to consider how soon you need the money. Most loan applications can take a while to process and be approved, so if you need some cash fast, then a traditional business loan probably isn’t the right route for you.
- Gather Application Materials
The first thing you’ll need is all the information about your business. If you have an existing business, this means your financial documents, revenue reports, future projections and anything that has to do with the fiscal operations of your business.
If you’re applying for a loan to open a business, then you’ll need to present a business plan. Your business plan is a document that explains the purpose of your business, your goals, your revenue-generating model and how soon you intend to start making a profit. All of this information is crucial for lenders to assess the validity of your business and the risk in their investment.
In addition to these things, you’ll also have to fill out a formal application for your small business loan. This will be specific to the lender you choose and often requires significant personal and business information. They will run a credit check to ensure you have a history of paying your debts and assess the amount they’re comfortable lending you.
Next, you’ll need to outline the collateral you’re offering against the loan. These are items, liquid or otherwise, that you’re offering the bank in the event you can’t pay out your loan. (Note: Set up your business as an LLC so your personal assets can’t be used as collateral.) How much collateral you need will depend on the size and scope of your loan.
- Review and Apply
Now that you have everything gathered into your application, you can review all of the information to make sure it’s correct. The review process is very important. Any incorrect information could result in significant delays with your loan process or even a denial of your loan application. Go through all of your materials to ensure you’re submitting what the lenders need and all the information is accurate and up to date.
With the review process complete, it’s time to submit your application! Every lender will have specific instructions on how and when to submit your loan. If you’re working with a broker or representative, be sure to let them know when you’re ready to submit and follow their instructions carefully. You can also reach out to them after you’ve submitted it to ensure they received your application and have everything they need.
Starting a business is an exciting endeavor, but most people need a little help. If you’re looking into securing a business loan, use these three steps to find, select and apply for the business loan that makes the most sense for you. After your loan is approved, you can start making your dreams come true.