Getting your small business off the ground and ultimately turning a profit can be a lot easier if you know how to get a loan. No less than 38% of startups failed because they ran out of funds and couldn’t raise new capital. This supports the need for loans to help these small businesses during challenging times.
Lenders want to ensure that your small business has the potential to succeed before they give out loans. Therefore, you need to show lenders how your small business will grow and how you will repay your loan. We’re here to show you how with this simple guide on how to get a loan for a small business.
What Is a Small Business Loan, and Why Do You Need One?
A small business loan is provided to small businesses by the government or creditors to help them get started or expand. You can also use business loans for big purchases or upgrades like hiring or remodeling.
You may also need a small business loan until your business can make enough money to sustain itself. The loan can help support your business’s daily operating costs until it starts making enough money on its own.
How to Get a Loan for a Small Business
Filing for a small business loan may take a few minutes to several hours, depending on your creditor. However, there is a lot of preparation you must complete before beginning the loan application process.
Your lenders are looking for some specific things from your application to determine if you and your business qualify for a small business loan. The following tips will guide you to fulfill those requirements.
Evaluate the Business’ Financial Status
Evaluating your business’ financial status helps determine the specific reason you need the loan. This is one of the crucial elements your lender wants to know before giving you a loan. You can evaluate your financial health by looking at your savings and business liquidity.
Many small business owners seek loans to run daily operations, employ staff, or acquire more assets. Knowing exactly where you will use your loan funds helps you determine how much you need and what type of loan you should opt for.
Determine the Type of Loan And How Much You Need
By looking at the financial health of your business, you can determine the type of loan and the loan amount you need. Applying for the right loan based on this information can significantly raise your chances of getting that loan.
Common types of loans include the following:
- Term loans
- Small Business Loans
- Equipment Financing
- Business lines of credit
- Personal loans
Knowing your financial status also helps you determine how much debt the business can pay off within a certain time. There’s no doubt your lender will also be interested in knowing these things.
Develop a Solid Business Plan
A solid business plan means you have an actionable plan to utilize the loan when you get it. Why would a financial institution care about your solid business plan?
They care because it shows that you can pay back the money they lend you. That is why filing your data-backed business plan with your loan application is advisable. Your business plan should describe your product offering and target market. It should also show your projected financial statements.
Lastly, make sure to include details on any risks associated with the business and how you intend to mitigate them.
Research Numerous Lenders
It’s not enough to get any loan for your small business. Getting a loan with favorable interest rates, amongst other conditions, is critical. Therefore, research multiple lenders and financial institutions to determine which loan and rate are best for your business.
Compare the offerings from various sources, including banks, government agencies, and alternative lenders. Make these comparisons considering your business’s financial status and business plans to help you make the right choice.
Research and Assemble Your Requirements
Once you have a pretty good idea of loan options in the market, you need to check out their loan requirements. Matching any lender’s requirements certainly increases your chances of getting a loan from them.
Remember, loan sources want you to be able to demonstrate repayment. As such, being able to fulfill their requirements is the most secure way to guarantee this.
The following are some common requirements to qualify for a loan:
- A strong business credit score
- Tangible collateral
- Strong business plan
- Business track record
- Business and personal tax returns
- Business registrations and licenses
- Legal business documents
Apply for the Loan
The documents listed above and more will be required to secure your loan, depending on the lender. So, you must ensure you organize them and send them along with your loan proposal documents.
This application should also contain your business plan and current financial statements. Please make note that you must sound confident when writing your proposal. This shows the lender that your business has a lot of opportunities for success and will increase your chances of getting the loan you want.
