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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. A loan can also be used to purchase business equipment, supplies, and furniture. However, picking the best business loan can be difficult and time-consuming because various funding options are available.
However, it does not have to be. Today, there are faster and simpler ways to get the funds your small business 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.
There are several types of loans to consider, whether you have a startup or a long-established business. Keep in mind that many lenders prefer to work with companies operating for more than one year because there is less financial risk. That said, there are options if you need a startup loan.
Commercial banks, credit unions, and direct lenders offer loans, and they will compete for your business. The Small Business Administration’s SBA 7(a) loan program might also be an option. Some popular loan options include secured business loans, unsecured business loans, and working capital loans. Secured loans are backed by collateral, such as a house, car, savings, or business equipment. If you stop making your loan payments, the lender can put a lien on your collateral. If you default on your loan and cannot repay it, the lender can legally take hold of your collateral and sell it to compensate for any incurred losses.
An unsecured business loan does not require 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 needing a near-perfect credit score. A working capital loan is used to fund everyday operational expenses or immediate expenses such as inventory. This type of loan is not recommended for long-term investments or business expansion efforts.
2. Review your credit history and credit score.
After picking a loan type and lender, it is good to get your credit history and PAYDEX® Score in order. Next, contact one of the major credit bureaus and request your updated credit report. Read through it carefully once you receive your information to ensure no 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 them. 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.
You will need to make an appointment with your lender to determine which business documents are required to submit your application. Typical requirements include your business’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, ensure you have all this information readily available.
4. Review the terms of the business loan.
You do not want to proceed with a business loan unless you thoroughly understand its terms. Take the time to read everything to ensure it is the best option for your business and budget. The last thing you want is to be tied up in a loan with costs, fees, or restrictions you were unaware of before 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. Then, do not sign on the dotted line until you are entirely comfortable with the loan terms.
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. The review process for a secured business loan application can take several days or weeks. You can expect a quicker decision if you are applying for an unsecured loan. On the other hand, if your small business needs cash right away, an unsecured loan might be the best choice.
Balboa Capital, a Division of Ameris Bank, is not affiliated with nor endorses the Small Business Administration or PAYDEX. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.