Financial aspects are the major concerns of any business owner. But you are not alone in this race so just relax. Are you also thinking of opting for a business loan for your business and are scared of the long process of application and hefty documents needed for the application? I totally understand. Knowing the process of application might lower your anxiety. Check out these 5 steps to get a business loan.
1. Decide what kind of loan you need?
One of the first questions a lender will ask is why you need a loan. Have a specific response to this. There are many different types of loan choices on the market. Make a decision about the type you wish to go with.
SBI Loans:
SBI loans are partially government-guaranteed business loans. The Small Business Administration works with pre-approved banking institutions. As a result, the lender’s risk is reduced, and the loan terms are improved.
Start-up loan:
A start-up loan is a loan that is used to start a new business. This is not a loan for people who are just starting off. At the very least, your company should last a year. In order to lend them money, the lender will prefer to see your regular cashflows.
Microloans:
Microloans are a good option if you only require a modest quantity of money. You can borrow $50,000 as per the US Small Business Administration.
Equipment loan:
Equipment financing is available to help you purchase equipment if you are beginning a new business. Generally, with this type of loan, credit is more flexible as the equipment is used as collateral to secure the financing.
Working capital loan:
This is a short-term loan to cover daily expenses, like rent and payroll, which can help you cover temporary cash flow problems.
2. Check out whether you qualify for a loan or not:
Before moving forward with your application, the lenders would like to consider a few factors. The lender will scrutinize your credit score, collateral, time in business, and overall annual revenue. Lenders typically look at your companys credit scorethis aids in determining your ability to repay. A high credit score means a high chance of approval. Lenders use collateral as a kind of security. You should have at least two years of experience in the industry. And your revenue informs them as to whether or not your company is doing successfully.
3. Decide on the number of payments you can afford:
Determine your company’s cash flow throughout the preceding months. As a result, you must be aware of your financial situation. This provides you a rough sense of whether you’ll be able to repay the loan. Your income should be 1.25 times your expenditures for the monthly payments. This shows you how much time you have in your account to return the loan, so you don’t have to wait forever to pay it off.
4. What collateral loan do you have:
You take out a collateral loan in exchange for the right to keep your property documents or equipment, which the lender can confiscate if you don’t return the debt. So, you can apply for a personal loan in banks when you can provide collateral.
A collateral loan is usually used as a form of security for the lenders. Despite the fact that a collateral loan is a bit riskier, you can acquire a large loan amount. Also, a personal guarantee is included with a collateral loan, which implies that if your business.fails, you will be responsible for repaying the amount.
5. Gather all the required documents.
First, decide where do you want to get your loan from and the type of loan you want to go with. Second, apply for a loan, and for this, you’ll need a collection of documents to submit with your application, which the lender will review. Depending on the type of loan and lender, you’ll require:
Business licenses
Personal and business bank statements
Profit and loss statements
Financial statements
Business legal documents (franchise agreement articles of incorporation, commercial lease)
Business plan You can submit your application once you’ve gathered all of these documents.
Conclusion:
The initial stage is always difficult and involves a slew of difficult decisions. However, once you begin executing things step by step, everything begins to fall into place. Obtaining a business loan is the first step toward your companys growth and development. So, sit back and enjoy the journey of your company’s growth. Make certain you complete all these five stages.
