Mar 5, 2019 How to get a small business loan?
Getting a business loan is a big move for your business, especially if you are a small business. If you decided that getting a business loan is the right move for you, here are the next steps:
1.Find the right type of loan
If you are just starting a business, it’s very likely that you are not eligible to apply for a business loan in the first year. Traditional lenders such as banks usually require for businesses to have cash flow to proof that you are able to repay the loan.
2. Who’s the best lender for you?
There are plenty of lenders you can loan from, such as banks, nonprofit microlenders and online lenders. You must consider you own needs as well as the requirements of each lender.
Lend from the bank if you have good credit, is able provide collateral and don’t need cash fast. However, that means that small businesses would have an extremely hard time getting their application approved with banks due to lower cash flow and reserves. Loans from banks typically take two to six months, so if you are in a hurry, banks are probably not the best place to go to.
Nonprofit micro-loans are usually for disadvantaged business owners who need cash to get their businesses up and running. However, different microlenders will have vastly different application criteria and might not suit everyone’s needs either.
Online lenders are probably best for small businesses as they rarely require collateral or any extensive documents. The approval rates are higher and you can get funding quickly as well. But this also means the interest rate is higher for these online loans.
3. Find out what you need to apply?
Different types of loans have different requirement, but here are the general requirements:
Credit Score
You will need your credit report to apply for most loans, especially loans from banks. Banks requires for you to have a credit score above a certain threshold most of the time. If you fall below the threshold, you might want to consider online lenders.
How long have you been in business?
Lenders will take into consideration of how long you have been in business. For bank loans, you usually need at least 2 years to qualify; while for online lenders, the requirement ranges from 6 months to a year. If you are a startup, having an extensive business plan might increase your chances of getting a loan from the bank.
Cash flow
For all loans, you will need to provide your financial history to assess your repayment ability. Find out the minimum annual revenue required from your lender. Beyond the lender’s requirements, you must evaluate how much you can afford to take out comfortably.
4. Get your documents ready
Now that you have weighed out all your options, you need to gather the documents you need to apply for the loan. Depending on the lender, you will need to submit different types of documents. These are some of the documents which are generally required:
- Personal identification
- Business legal documents (e.g. ABN for your business)
- Business and personal bank statements and tax returns
- Business Plan (if you are borrowing from a traditional lender)
- Again, make sure you check with the lender to see what documents are needed for the application.
The application process might sound lengthy and complicated, but it doesn’t have to be. With our partner Prospa, you can get small business loans quick and easy. Find out more about their small business loans here.
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