3 Steps How To Get A Small Business Loan

(doylc.com) How To Get A Small Business Loan - Whether you are planning to expand an existing business or are just starting a business, a small business loan can give you the financial support you need. Not all businesses can get a small business loan, so you need to be extra careful when applying. Make sure your credit history is as strong as possible and research lenders. Lenders will want to see numerous financial documents, so collect them in advance. Although it takes a lot of work to get a small business loan, it can be done.

• Improving your credit profile

Pull your personal credit score. Most lenders will check your personal credit history even when you apply for a business loan. Therefore, get your credit rating and see if it is high enough to qualify for the best interest rates. In general, you need a score above 680. You can get your credit score in the following ways:

Check your credit card statement. Many credit card companies now give their customers their FICO score.

Buy your FICO score for $20 at myfico.com.

Use a free site like CreditKarma.com or Credit Sesame.com.

Obtain a copy of your personal credit report. Errors on your credit report can affect your credit score. In the US, you can get a free copy of your credit report every year from the three major credit reporting agencies (CRAs). Do not contact the CRAs individually. Instead, visit annualcreditreport.com or call 1-877-322-8228. All three credit reports will be sent to you.

Remove inaccurate information from your credit report. Highlight any errors and contact the CRA that has the incorrect information. Common errors are accounts listed that you don't own or accounts incorrectly listed as default.

You can contact the CRA directly through their website. If the inaccurate information appears on more than one credit report, you only need to contact one CRA, who will notify the other two.

It may take up to 60 days for inaccurate information to be removed.

Improve your credit score. Repaying your balances is the quickest way to improve your credit score. Tackle high-interest debt first, such as B. Credit Card Debt. Send every monthly payment on time and pay at least the minimum. You should see a slow but steady improvement in your credit score.

Avoid taking a new credit card as it will temporarily hurt your score. Instead, you can request a credit limit increase for one or more cards.

Unfortunately, there is no quick fix to improving your credit score and you should avoid any company that promises to improve your credit score quickly. These companies are often scammers.

Build your business credit. Lenders will also look at your business credit profile. Start building your business credit history by getting a DUNS number from Dun & Bradstreet. You can get it for free by registering on their website.

Your creditors should report your payment history to Dun & Bradstreet. If not, list them as trade references. Dun & Bradstreet will then follow up and collect payment information.

Your business credit report contains information about court judgments or liens against your business. You can increase your business credit by paying off liens and judgments.

• Identification of loans and potential lenders

Determine the type of loan you need. There are different types of business loans that you can get. You should identify the type you need before speaking to a lender. Consider the following options:

line of credit . You can take out a credit line if you're short on cash. For example, you may need money to do payroll or to pay a supplier. You then pay back what you have drawn on your line of credit. A line of credit is very similar to a credit card.

installment loan . You can get an installment loan to expand operations. You pay it back in equal monthly installments over one to seven years.

equipment rental . You get a loan to buy equipment, and the lender takes a security interest in the equipment until the loan is repaid. If you default on your loan, the lender will confiscate the equipment.

Stop in banks. Some banks are reluctant to lend to small businesses, but you should still stop by and speak to a loan officer. Discuss your business and ask about the bank's requirements. You should stop at least a month before applying.

Visit banks you have done business with as well as banks you have not had any relationship with before. However, local community banks are more likely to lend to small businesses than large national banks.

Check with credit unions. Credit unions have increased the number of business loans they issue, making them a good option for small business owners. You must join the credit union before you can apply for a business loan, but setting up an account shouldn't be too much of a hassle. Credit unions typically offer better interest rates and lower fees than traditional banks.

Find out about online lenders. Online lending has exploded in recent years and is a great option if your credit history is less than perfect. You can find online lenders on various aggregator websites such as LendingTree and Fundera.

There are many online scammers, so do your research on online lenders. Look up the business at the Better Business Bureau and google the company to look for complaints. Only do business with an online lender that has a street address.

Find out about government-backed loans. In many countries, the government guarantees loans. That means they agree to pay back a certain percentage of the loan if the borrower defaults. This guarantee usually gives you better interest rates and repayment terms.

In the United States, the Small Business Administration (SBA) guarantees small business loans. The most popular loan program is the 7(a) program, which guarantees loans of up to $5 million. 7(a) loans can be used to start a new business or expand an existing one.

Even if the SBA guarantees the loan, you still apply to a bank. Talk to the bank about whether they have experience with SBA loans and ask if they are part of the SBA Preferred Lender Program (PLP).

Ask friends or family for a loan. The people you know best may be willing to lend money to your business. Approach your friends and family the same way you approach a bank. Provide them with a copy of your business plan and financial documents.

You can agree to pay interest, which shows you are serious about paying back the loan. In the US, the interest rate should not be higher than the maximum rate allowed in your state, but should be at least the Federal Funds Rate, which you can find on the IRS website.

Also create a promissory note and sign it, making the loan official.

• Gather Required Information

Prepare a personal annual report. Any owner who owns at least 20% of your business should prepare a personal financial statement. Financial statements contain information about your assets, e.g. B. Cash, Mutual Funds, Certificates of Deposit and Real Estate. They also identify any liabilities to lenders, creditors, and the government.

Compile business financial documents. Lenders will want to see your balance sheet, income statement, and cash flow statement. If you need help creating these documents, contact an account.

Ideally, your financial statements should be audited by a chartered accountant. Ask another business owner if they would recommend their CPA, or contact the nearest accounting firm for a recommendation.

Gather other required information. Lenders want a complete picture of your business, so they require a lot of paperwork. Collect them in good time so that the application process runs smoothly. Get the following:

Personal tax returns for the last three years

Current personal bank statements

Trade tax returns for the last three years

Current business account statements

Resumes for each owner and each member of management

business leases

Articles of Incorporation (if an LLC) or Certificate of Incorporation (if a corporation)

Franchise Agreement (if applicable)

Show that you have the required deposit. Usually you need a deposit of 20%. If you're hoping to borrow $100,000, you should have $20,000 in cash. Make sure you have bank records showing the deposit required.

Create a business plan. Your business plan defines where you want your company to go over the next few years and how you want to get there. Lenders want to see a solid business plan before making a loan. Your business plan should include your target market, marketing plan, management, and financial projections.

Some lenders want your business plan to include specific information. Visit the bank before applying and ask about their specific requirements.

Business plans can be difficult to write. In the US, you can get help from your nearest Small Business Development Center, which can be found at https://www.sba.gov/tools/local-assistance/sbdc.

Document all collateral. Some lenders won't give you a loan unless you pledge assets as collateral. Collateral protects lenders as they can seize the assets if you default on your loan. Common forms of collateral include inventory, heavy equipment, receivables, and your home.

You should document the location and condition of the collateral. If possible, hire an appraiser to value the collateral.

• Applying for your loan

Fill out your application. Each lender's application will be slightly different. However, most will ask about your reasons for applying for the loan, as well as the identity of your management team. Also identify any suppliers from whom you will be purchasing assets.

Any lender pulls your credit report, which affects your credit rating. However, all credit pulls in a two-week window count as a single pull, so plan accordingly.

Wait for feedback. You should receive feedback within two to four weeks. If you prefer, you can call once a week and ask for an update on your application status. The lender may require additional documents, so provide them as soon as possible.

Approximately 80% of small business loan applicants are rejected. So don't be surprised if you get rejected. Ask any lender who rejects you why. For example, you may need to save a larger down payment or create a better business plan.

If you don't get a loan from a lender, you should consider other forms of financing, such as B. a business credit card.

Check the credit terms. Any lender who agrees with you should provide a term sheet that contains the details of the loan – the loan term, the APR, and the fees. Make sure you are comfortable with the conditions.

You will probably have to personally vouch for the loan. This means that if you stop making payments, the lender can pursue your personal assets, such as your car or house.

Complete the loan. Sign the term sheet or letter of commitment and return it to the lender. The lender then schedules a close, which usually occurs 45-60 days later. If your loan is guaranteed by the SBA, work with the loan officer to gather the necessary documentation for filing. Upon closing, you will review and sign a variety of documents before receiving your loan proceeds.