If you own and operate a small business, there will come a time when you need growth capital to cover the costs of employee payroll, inventory, office rent, and business taxes, to name a few. It can also be used to purchase business equipment, supplies, and furniture. With so many business financing options available, picking the best one for your company can be difficult, and time-consuming.
However, it does not have to be. Today, there are faster and simpler ways to get the funds your company needs to grow and expand. This Balboa Capital blog post explains how to get a business loan in five easy steps.
1. Pick a business loan type.
In the past, you would probably go to your bank or credit union to apply for a loan. As you know, most banks do not lend to start-ups. They prefer to work with established businesses because there is less financial risk involved. If your company is not a startup, you will have slightly more choices. Commercial banks, credit unions, and online lenders will each compete for your business, but their loan products have different requirements.
For starters, banks and credit unions like to lend to companies that have solid credit scores. Their loan applications are longer and more involved, and some form of collateral is needed. Your other option is to go with an online lender that offers unsecured business loans, which are quite popular among business owners. An unsecured business loan does not require any collateral, which means the loan is not secured against any assets. What’s more, an unsecured business loan can, in most cases, be approved without a near-perfect credit score.
2. Review your credit history and credit score.
After you have picked a loan type and lender, it is a good idea to get your credit history and Paydex score in order. Contact one of the major credit bureaus and request your updated credit report. Once you receive your report, read through it carefully to make sure there are not any discrepancies or errors. These can prevent you from getting your loan approved.
If you spot any errors, write a letter to the credit bureau and ask them to correct it. If you have late or missing payments, or too many credit requests, you might need to work with a credit repair company to get them removed. Once your credit score is where it needs to be, you will be ready to apply for a business loan.
3. Prepare your business paperwork.
If you elect to go with a bank or credit union, you will need to make an appointment in person to find out which business documents are needed when you submit your application. Typically, banks and credit unions will require your company’s financial statements and accounting records.
Additional information that needs to be provided includes your business name, Federal Tax ID, list of owners/officers, legal structure, and a copy of your insurance policy. To save time and expedite the process quickly, make sure you have all of this information readily available. If you are applying for an unsecured business loan from an online lender, you will not need all of this information.
4. Review the terms of the business loan.
You do not want proceed with a business loan unless you thoroughly understand its terms. Take the time to read everything to make sure it is the best option for your business, and your budget. The last thing you want is to be tied up in a loan that ends up having costs, fees, or restrictions that you were not aware of prior to applying.
Look at the interest rate, loan origination fee, and administrative fees, and ask if the loan can be paid off early without a penalty. Do not sign on the dotted line until you are completely comfortable with the terms of the loan.
5. Submit your loan application.
Once you have all of your ducks in a row, it is time to submit your small business loan application. As mentioned earlier, a bank or credit union will require more paperwork, which means their loan applications are longer and more involved. The review process for bank or credit union business loan applications can take several weeks or months. If you are applying for an unsecured loan, you can expect a quicker decision.
Depending on the online lender you choose, you can expect a pre-approval decision in as little as 24 hours, and a final approval can usually be obtained in a few days. If your company needs cash right away, an unsecured loan might be the best choice.