Unlock the Secret to Growing Your Business with These Foolproof Steps to Secure Your Small Business Loan!

If you’re looking for a small business loan, there are key steps you need to take to increase your chances. Forbes Tutor He says your chances of approval depend on the lender’s requirements and how well you meet them, so applying with little or no preparation risks rejection. Here’s how to get the process started.

How to determine if you should apply for a business loan

Colin Beresford, a spokesman for Forbes Advisor, says a business loan could be beneficial for many reasons, such as if you’re buying assets that will add to the long-term value of your company or if the only way to expand your business is with additional funds. “While many may expect only a struggling business to require a loan, they can provide a boost to thriving businesses. For example, a restaurant owner may be attracting too many customers and cannot accommodate them, so a loan could provide the necessary funds to expand or open a new location,” Beresford tells FOX Business.

However, despite the advantages of a business loan, it’s crucial to never get a business loan if you’re in doubt about making payments, he says.

Beresford recommends using a business loan calculator to make sure your business can pay off any debt it takes on, and otherwise a business loan might not be a good fit. “This is especially important if you’re considered a secured loan, which can end up with your lender taking possession of your collateral if you default on the loan,” he cautions.

What things could a loan cover?

Beresford explains how there are various business loans and each one has unique characteristics, such as what they can cover, how the funds are disbursed or how the debt is paid; For example, a working capital loan can be used for business operating expenses, such as payroll. “Generally speaking, a business loan can cover a lot, including the cost of essential equipment or inventory,” he continues. “In addition to this, a loan can be used to hire employees and even to refinance debt.”

Ultimately, Beresford says, your needs as a business will determine the type of loan you need, so it’s important to identify areas that could benefit from support, as well as what might be affected in the future as your business expands. .

 What factors will affect your chances of approval or eligibility?

Lenders consider both personal credit scores and business credit scores to determine your ability to repay your loan. “The higher your score, the better chance you’ll be accepted for a loan, but most lenders will require a personal credit score of at least 680 and will take both personal and business credit scores into account,” he says. Beresford. Although, he says, some lenders will accept scores of 580 to 600.

Business longevity can also be part of the mix. “The longer you’ve been in business, the more likely you are to get approved for a loan,” Beresford tells FOX Business. Traditional banks generally require two years of operation, but businesses that have been in operation for as little as six months to a year may be accepted by an online lender, she says.

Beresford also points out that annual income is another factor lenders take into account, so higher is better, but they typically require between $100,000 and $250,000. “This is incredibly important to lenders as it indicates their ability to repay the loan,” he adds.

How can you compare loan options if you are new to this?

One way to compare loan options is to prequalify for a loan, which some lenders offer, he says. “Doing so is a smooth credit inquiry, which won’t hurt your score, and you can simply enter basic information about your business to receive an interest rate estimate if you’re eligible,” Beresford explains.

You can also compare loan options to consider exactly what you need financial help for, when you need it, and how likely you are to meet strict requirements to narrow down your search, says Beresford. “As traditional banks tend to be stricter with the requirements, the best option would be to compare lenders online, this is also recommended if you need the financing faster, as the response time can be slower with traditional banks” , says.

If you don’t need the money instantly, and meeting the requirements isn’t an issue, he says, shopping around for loans from traditional banks may be your best bet. “Usually, you’ll find that interest rates are much lower with a bank than with an online lender, but it can take several weeks or even months for your loan to be processed,” Beresford tells FOX Business.

How can a potential borrower prepare the required documentation?

There are several documents that are required for a business loan application, so it’s wise to take the time to collect and read them to make sure everything is correct to avoid any mishaps, he says. “Keep everything in one place and make copies of documents to avoid a lengthy application process,” suggests Beresford.

According to Beresford, you’ll typically need a minimum of 12 months of personal and business bank statements, personal and business tax returns for at least two years, and any details on current and past business loans.

It notes that you will typically need to provide copies of applicable business licenses and legal documents, articles of incorporation, profit and loss statements, financial statements, and a lease for the building. “Before you apply, contact your preferred lender to discuss the exact documents you’ll need, to make sure they’re up to date,” says Beresford. “If your business hasn’t been around long enough to have all this documentation, no-document loans might be a good option.”