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Getting a Small Business Loan Made Easy
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A business requires funding at various stages like when expanding operations, starting on a new project or getting back on track after losses. A small business loan is a suitable way to fund your business. Often, getting outside funding is necessary to start, expand the business or cover running expenses such as inventory and payroll.
However, securing a loan is a significant obstacle facing small businesses. Some entrepreneurs are even intimidated by the idea of getting a small business loan. This is because of the lending standards set by many banks.
How can you obtain funding for your small business?
The truth is that it can be challenging to find, apply for, and secure funding for small businesses. According to financial experts, due diligence can help to avoid most of the frustration around getting funding for small businesses. So, if you need business funding, be prepared. Make sure you have all the necessary documents required by lenders.
Here is how to obtain a small business loan
Know why you need the funding
You must be clear on how the credit benefits your business. Lenders will want to know why you need the funds.There are four main reasons:
• For start capital
• To meet day to day costs
• To expand your business
• Financial security; a safety cushion
Determine the type of loan that is right for your business
The reasons why you need funding will determine the kind of a loan you get. For starting up a business, it’s challenging to get funds. This is because lenders need cash flow to support loan repayment. So explore other options like personal loans, crowd-funding, micro-loan from a nonprofit lender or family and friends.
Your options will expand if your business has at least a year of history and revenue. Your financing options will include term loans, SBA loans, invoice factoring, and business lines of credit.
Decide on the right type of small business lender
There are several sources of small business loans. These include online lenders, banks, and nonprofit micro-lenders. They provide many financial products, including lines of credit, accounts, receivable financing, and term loans.
Decide on the financing vehicle and type of lender that is right for your business. Then, compare 2 or 3 similar options based on the total cost of borrowing- the annual percentage rate (APR) and terms. Now, pick the one with the lowest borrowing cost, lowest APR. Of course, you must be sure you can manage the regular loan repayments.
You can choose to use the bank if you;
• Have good credit
• Don’t need a quick cash
• Can offer collateral
You can use the micro-lenders if your business is too small and cannot get a traditional loan.
You can use online lenders if you;
• Need funding fast
• Lack time in business
• Lack collateral
Determine if you qualify:
1. Know your credit score.
It is one of the factors which will determine the type of loan you qualify. You can obtain your credit report free of charge, once a year, from one of the three main credit bureaus; TransUnion, Experian, and Equifax. Also, you can obtain your FICO score from several credit card companies for free. You can also use personal finance websites.
2. How long has your business been in operation?
Lenders take into consideration the period your business has been in operation. You need at least a year in service to qualify for online small business funding. Most banks require at least two years in operations.
3. How much money do you make?
Most online lenders need minimum annual revenue. This ranges between $50 000 and $150 000. It is essential to know your yearly income and also to find out the lender’s minimum revenue requirements before you apply for the business loan.
4. Can you afford the repayments?
It is essential to determine if your business can meet the payments. Carefully examine your business’s financial statements, especially the cash flow statement, and evaluate how much it can afford to contribute monthly, toward loan repayments. Many online lenders need daily or fortnight payments. Take this into consideration.
Your gross income should be, at the minimum, 1.25 times the total expense. It will enable you to repay the loan comfortably. Yes, the total costs should include the loan repayment amount.
Gather your documents
After determining your best options, apply for the loans that you qualify for, and that will meet your financing needs. You can apply for several loans within a short duration, about two weeks, without negatively affecting your credit score.
You will need to submit the following documents with the application
• Business financial statements
• Personal and business bank statements
• Individual and business tax returns
• Business legal documents.
N/B: The combination of the documents to be submitted will depend on the type of business and the lender.
A small business loan is a suitable way to fund your business. Often, getting outside funding is necessary to start, expand the business or cover running expenses. If you need business funding, be prepared. Make sure you have all the required documents required by lenders.
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