Everything You Need To Know Before Applying for A Small Business Loan
Is your company having trouble raising funds? Maybe it’s time to apply for a small business loan.
But don’t rush the application process. Make sure you come to the bank prepared with your documents, business plan, and an understanding of how loans work. That said, here’s everything you need to know about applying for a small business loan.
Know the Reason Behind Your Business Loan
Whether you’re a self-employed individual, proprietor, or in a partnership form, your entity is eligible to apply for a small business loan. Here are some possible reasons for applying.
- Poor cash flow
- Expensive equipment costs
- Hiring
- Emergency funds
- Advertising fees
Next, you should consider that a business loan takes time. To make the process quicker, it helps to calculate how much money your company needs. Add initial investment needs, maintenance costs, utility costs, and commercial insurance.
Know when to Apply for a Loan
There is no best time to apply for a loan, especially if you’re still a growing company. You can apply as soon as your business needs money. However, a thorough evaluation is recommended to help you establish your financial needs.
Write a Business Plan
Traditional private lenders want a detailed business plan to understand where the financing will go. Without one, you might experience difficulty finding a prospective lender to evaluate your ideas.
But you can consult online lenders that do not require formal business plans. They pre-approve businesses based on total sales, storefronts, and more.
Your Credit Score Matters
A business’s credit score partially determines whether your application for a small business loan will be accepted or not. Many lenders offer better financing terms for business owners with high credit scores.
But a good track record of having debts and responsibly paying them might matter more to some lenders. Others look at your business’ revenue as it illustrates your ability to repay the loan.
Prepare Your Documents
Another way to make the application process quicker is to prepare the documents in advance. These requirements depend on your lender of choice. But some possible documents they might look for include:
- PAN card
- Identity proof
- Address proof
- Proof of business
- Business and personal bank statements over the last six months
- Business and personal tax return records
- Financial statements
- Commercial lease
- Franchise agreement
Follow the Instructions
Lenders have different instructions for small business loan applications. Some lets you access a link online and input your business account details. Others, such as banks, will require you to go to a branch or call them on the phone.
What to Do if Your Application is Accepted
Keep improving your business credit. Pay your existing debts, expand your assets, and maximize your income to build your financial profile.
What to Do if Your Application is Rejected
Here are some things you can do if the lenders disapprove of your application.
- Understand the reason behind the rejection by asking.
- Check and improve your business’ financial standing.
- Be more strategic and careful next time.
Verdict
Applying for a loan when your business is still blossoming can be overwhelming. But it’s possible if your credit report and overall financial circumstances are impressive.
If you want to play safe on this decision, try applying online. It will give you the advantage of pre-approved loans as soon as you pass the minimal requirements.
