Getting small business loans should be one of the priorities of those who want to engage in business. This is because small business loans can help you grow your business, fund new research, and development, and also help enhance sales. A business loan can be used to finance your next stage of growth or to keep your business on solid ground during an unexpected crisis.
But the question here is how one can get a loan for a small business. Getting a loan for your small business should not be a big deal if you know the procedure of getting a loan. This article will show you the procedure you need to get a loan for your business.
Procedures to Get Small Business Loans
To get a small business loan, you have to;
- Know the purpose of the loan
- Decide how much you want to borrow
- Be knowledgeable on the diverse types of small business loans available.
- Check your eligibility status.
- Do research on lenders.
- Put in place your required documents.
- Submit your Application
1. Know the Purpose of the Loan
You cannot get a loan for your business if you do not have an idea of what you want to do with the cash. You need to know why you need the loan. Below are some reasons why you may need a small business loan. You may need the loan to;
- Start a business.
- Buy new equipment for your already existing business.
- Pay for your day-to-day expenses like payroll and rent.
2. Decide How Much you want to Borrow
Knowing the purpose of the loan already, the next thing you should do is to run an estimate on the total sum of money you will need to achieve the purpose of the loan.
3. Be knowledgeable about the Diverse Types of Small Business Loans Available
When you know why you need the loan for your business, and how much you need, then you will be able to decide the type of business loan you want. Different types of small business loans are available.
It depends on the needs of your business, the terms of the loan, and the length of the loan. So knowing the different types of loans for small businesses will help you decide what kind of loan you want. Here are some types of business loans:
- PPP loans. This loan can be used for rent, payroll costs, property damage costs that is not covered by insurance, utility payments, etc.
- Small business loans. This type of loan is used for business operations, business expansion, and capital expenditure.
- Equipment loans. It is used to buy business equipment, software, vehicles, etc.
- SBA disaster loan. This loan is for businesses that have suffered a disaster.
4. Check your Eligibility Status.
You need to be sure if there is a possibility that the lender will accept your loan, therefore need to check your eligibility status.
Lenders are likely to check your credit score, collateral, personal guarantee, your annual revenue, and your time in business.
Also, your financial statement, outstanding loan, and cash, investors in your business, when reviewing your business loan application.
5. Do Research on Lenders.
There are different types of lenders and their offer varies. Their loan approval rate also varies too. So you need to research to determine the type of lender you want to approach. Some of the lenders include:
- Direct online lenders.
- Large commercial banks.
- Peer-to-peer lending sites.
- Bank lenders are backed by SBA guarantees.
- Traditional banks.
6. Put in Place your Required Documents.
Some documents are required to secure loans for your business. But if you are not sure of the documents your lender needs, you can ask; what you need to apply for a loan. Some of the required documents are:
- Business plan.
- Building lease.
- Financial statements.
- Business License.
- Personal and business tax returns.
- Profit and loss statement.
- Articles of incorporation.
- Personal and business bank statements.
7. Submit your Application
The last thing to do is to submit your application. This can be done online or in person, it depends on the choice of your lender. Also when submitting your application, the lender might ask for some details, including;
- Your name.
- A business name.
- Your social security number.
- Amount of loan.
- The purpose of the loan.
- Your annual revenue.
- And your business tax ID.
When you submit your application, you will then have to wait for approval from your lender. If your loan is approved, the lender will send you a loan agreement to sign before proceeding to give you funds.