Do you have big ideas for your small business? If so, you may find that it’s time to secure funding so you can bring your ideas to life.
The small business loan process can be complex depending on the type of loan—and lender—you choose. Being informed and prepared will increase your chances of getting a loan so you can grow your business.
Here are six tips to help you navigate the small business loan process:
- Check Your Credit History
- Know Your Loan Options
- Understand Qualifications and Requirements
- Organize Financial and Legal Documents
- Develop a Business Plan
- Access Collateral
- Check Your Credit Report and Scores
Whether applying for a small business loan from a bank, the SBA, or an online lender, you’ll need to have a good handle on your credit history. Before starting the loan process, get a business credit report and a personal credit report. If you find any mistakes, contact the reporting credit bureau to correct the error before applying for a loan.
Loans from banks and the SBA typically require higher credit scores than online lenders. However, other factors such as business revenue, cash flow, and length of time in business are considered as well.
- Know Your Small Business Loan Options
Understanding the different types of small business loans will help you decide which one suits your needs and qualifications. The most common types of loans include:
- Bank Loans: Loans from banks and credit unions are considered traditional loans. If you have an established relationship with a local bank or credit union, it’s worth taking the time to speak with a lender about their loan options. Common types of traditional small business loans include commercial real estate loans, business term loans, and vehicle loans.
- Small Business Administration (SBA) Loans: The SBA is a government agency that helps small businesses secure funding. The agency does not lend money to businesses directly. Rather, the SBA partners with banks, non-profit organizations, and other lenders to back the loan.
SBA loans range from $500 to $5.5 million. The funds can be used for a variety of business purposes, although some loan programs or vendors may set restrictions on how the funds can be used. SBA loans offer several benefits for small businesses, such as competitive terms, lower down payments, and resources to help manage a business.
- Online Lender Loans: If you’re interested in an alternative to a bank loan, online lenders all types of loan options—from term loans and SBA loans to lines of credit, equipment financing, and merchant cash advances. Many online lenders offer same-day or next-day approval, which provides almost instant access to funding.
- Understand the Lender’s Qualifications and Requirements
The minimum small business loan qualifications and requirements vary by lender, but most use criteria such as credit scores, annual revenue, and years in business. When researching loan options, be sure to ask lenders exactly what you’ll need to meet or exceed the minimum qualifications and requirements.
For SBA loans, your business must meet size standards, demonstrate the ability to repay the loan, and have a sound business purpose. To qualify for a SBA loan, a small business must also:
- Be a For-Profit Business
- Conduct Business in the U.S.
- Have Invested Equity
- Not Quality for Funding from Other Lenders
Qualifying for a loan from an online lender can be quicker and easier, and the requirements are generally less strict than SBA loans. Although online lenders typically use common factors such as credit scores, revenue, and cash flow, they can be more lenient than traditional lenders or the SBA.
- Organize Financial and Legal Documents
No matter the type of lender or business loan you’re applying for, it’s best to be prepared to offer a range of financial and legal documents. These can include:
- Personal and Business Income Tax Returns
- Financial Statements (Income Statement, Balance Sheet, and Cash Flow Statement)
- Financial Projections
- Personal and Business Bank Statements
- Business Leases
- Business Licenses
- A Business Plan
While gathering your documents can be time-consuming, you’ll be prepared to provide exactly what your lender needs—and move through the application process much quicker.
- Develop a Solid Business Plan
One of the most important factors for lenders is your ability to repay a loan, in addition to how you plan to spend the funding. If you don’t have a solid business plan in place, be sure to develop one before you apply for a loan. Not only will a lender feel more confident in providing funding for your business, but a good business plan can also improve your chances of getting approved.
A business plan should include the following:
- Your Company Description
- Product or Service Descriptions
- Short Biographies of Your Management Team
- A Facilities and Operations Plan
- An Industry Analysis
- A SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats)
- A Marketing and Sales Strategy
- Assess Your Collateral
Putting up collateral can often make it easier to get a business loan—with better terms. Established businesses can use equipment, machinery, vehicles, real estate, inventory, or accounts receivable as collateral.
If you haven’t been in business very long or don’t have business collateral, some lenders may ask for personal collateral. This can include personal vehicles, real estate, savings or retirement accounts, or other valuable items such as jewelry and fine art.
However, requirements are different for each lender. Be sure to ask about your collateral options when speaking with lenders.
The application and approval process for a business loan can be stressful and time-consuming. If you do your research and prepare yourself accordingly, you’ll be more likely to receive approval for the type of loan that suits the needs of your business.
At TRV Funding, we’ve arranged over $2 billion in small business loans and offer a variety of options for small- and mid-sized businesses and not-for-profit organizations. We can even accept low credit scores! Call us at (844) 487-8878 to speak with a friendly representative to learn more about our funding options. You can also fill out our quick online application to receive a free instant quote!