No matter the stage of growth your business is in, there will come a time when extra funds can be useful. Many companies, both large and small, use borrowed capital to fuel growth and finance other business initiatives. Whatever the need, a loan is one of the most sought-after financing methods. To obtain one, however, you need to follow a few steps:

1. Understand how banks evaluate you

Before applying, it’s important to understand how your loan request will be assessed by the lender. Lenders base their willingness to grant a loan largely on the borrower’s ability to make each scheduled payment. They take into account:

  • Your personal credit score
  • Commercial credit history
  • Cash flow
  • Time in business
  • Collateral
  • Industry
  • Customer loyalty

2. Decide what type of loan or financing you need

Even if you’re not an expert in business financing, with so many options available, it’s important to identify the type of financing that best meets your business needs and fits your credit situation. Options include:

  • Small business administration loans
  • Traditional bank loans
  • Non-bank online loans
  • Cash advances for businesses/merchants
  • Business lines of credit
  • Business credit cards for legal entities
  • Supplier financing
  • Revolving credit lines

3. Choose a lender

Now that you know what qualifications the bank will require—and which loan product best suits your needs—you can begin selecting a lender. Not all lenders offer every service, so narrow your search to those that provide the type of financing you want and are likely to approve your loan based on your creditworthiness.

Some lender characteristics are negotiable, while others are firm. For example, a bank offering a higher interest rate than your ideal isn’t necessarily a dealbreaker, but may not be favorable. Make a list of what you’re willing to compromise on and carefully evaluate each lender’s terms.

4. Assess your chances of approval

While some lenders may prequalify you based on basic information, the actual loan process will likely involve a thorough review of your credit report. Focus your initial applications on lenders where you’re most likely to succeed.

5. Gather documentation

For a formal business loan, you’ll need a lot of documentation. Commonly requested items include:

  • Business bank statements
  • Tax returns and supporting documents (both personal and business)
  • Any applicable licenses and registrations
  • Other relevant financial documents (credit card sales, unpaid invoices, accounts receivable)
  • Legal contracts (franchise agreements, incorporation papers, lease agreements)
  • You may also need:
  • A business forecast with cash flow and cost projections
  • Specific documentation for minority- or women-owned business loans
  • An updated business plan detailing growth and marketing strategies

In short, be prepared to provide any document or electronic record that supports your business plan and financial statements. Banks need evidence to validate your creditworthiness and your ability to repay the loan.

6. Complete the application

The process is generally the same whether you fill out forms in an office or online at home. Completing the application may take time, but with all your documents in order, it should be much smoother. Once submitted, expect a response anywhere from 24 hours to six months, depending on the type of loan.

Source: unsplash.com