Just as when you apply for a residential or personal loan, the commercial loan process can seem overwhelming and intimidating.
Furthermore, there are steps you can take to improve your chances of getting approved for a business loan.
With a closer look at some of the top tips to follow when applying for a business loan, you may be able to decrease your stress level and increase your likelihood of success with your loan application.
Determine How Much Money You Need
The loan amount you apply for will determine which loan programs are suitable for your needs, what your monthly loan payment is and more. With this in mind, you can see that accurately determining how much money you need is critical.
Keep in mind that it is difficult to revise a loan request to change the loan amount when you are halfway through the financing process. Therefore, take time to thoroughly review your financial needs as a first step.
Think About the Use of Funds
While you do not want your loan amount to be too small to satisfy all of your needs, you also do not want your loan amount to be too large. When your loan amount more than exceeds your needs, you risk having a loan payment that is unmanageable.
Furthermore, you will be charged costly interest fees on funds that are not needed. By identifying your use of funds accurately up-front, you can minimize the chance of getting a loan that is too large and too expensive for your needs. How you plan to use the funds may also dictate your loan options. For example, if you plan to use funds to purchase equipment, equipment financing programs may be ideal.
Explore the Loan Options Available
Now that you have a fair idea about the amount of funds that you need and the use of funds, you can explore the loan options available. Consider looking at local banks for competitive rates, but also explore alternative sources of financing.
For example, a car title loan on one of the vehicles in your fleet may be ideal if you need a secured loan with a relatively small loan amount. Keep in mind that there may be more than one source of financing for your needs. For example, an unsecured small business loan may also be used for a low loan amount.
Review Your Business Credit Rating and Financial Health
Many lenders will review your business credit rating and your company’s overall financial health before granting loan approval to you. You can pull your business credit report online to learn more about how strong your business credit profile is.
Take time to review bank accounts as well. Many business loans require a business owner to personally guarantee the loan, so you may also review your personal credit report and financial accounts. If necessary, take action to improve your financial health before applying for financing.
Gather the Required Documentation
When you apply for your loan, your lender likely will ask you for two to three years of business and personal tax returns and related tax documents, two to three months of bank statements, profit and loss and income statements for the business and more. The list of information required for your loan request can seem daunting, so it is beneficial to get a head start on the documentation now.
Verify that you have easy access to all of these items, and take steps to order them now if necessary. This will help you to avoid unnecessary delays during the actual loan process.
Shop for the Best Loan Program
You are now ready to start shopping around for the best loan program for your needs. You may be inclined to look for the lowest interest rate and fees, and these are important factors to search for as you shop around. However, it is more important to first find loan programs that are suitable for your needs and that will accept your current financial situation or business credit rating.
You can make a list of suitable lenders that meet these criteria as a first step, and you can then comparison shop for the best rates and fees as a second step. This will help you to find the right loan program for your unique needs.
Have a Repayment Strategy in Place
A final and very important tip to follow is to develop a repayment strategy for your loan before you apply. It is wise to update your budget before you apply for a loan, and this can help you to determine how affordable your monthly debt payment will be.
Incorporate the new payment into your budget to develop a long-term repayment strategy that is affordable and manageable. Some businesses fail to take this step, and they find out too late that their loan payment is unfortunately not affordable for them to make on a regular basis.
Applying for a business loan is a great step to take when you need extra money for everything from buying new inventory or equipment to expanding your business space and more. Whether you need a smaller or larger loan amount, it is important to avoid making a hasty financing decision. When you apply these helpful tips to your initial loan efforts, you can more comfortably and securely move forward with your loan application.
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