Understanding the steps to obtaining a Small Business Loan

Need some financial help? Understand the steps to obtaining a small business loan.
 
You’re business is ready to take the next step, in whatever direction that is, and you need to secure a small business loan to help. But how do you secure such a loan in today’s tight lending climate? Getting a loan can be a hurdle but obtaining the outside financing to get your dream off the ground can happen.

Finding, applying for,  and getting approved for a small business loan can be difficult, however the more prepared you are, the better. In this post we review some key ways to go about securing your next business loan.
 
Ask yourself “why”

The first step in seeking any loan is to ask yours why. Ask yourself how this loan will help or may even hurt your business. Any and all lenders you go to asking for the loan will also ask you this question. It’s important you not only prepare yourself for the answer but also the lenders looking to hand over the cash you need.
 
Most often you’ll find that your answer will include one of the following:

• To start a business
• To grow the business
• To manage day-to-day expenses
• To have a safety cushion

 
If you can answer the why, you can then move on to what type of loan you may need.
 
 
Determine what loan you need
 
You’ve answered the why you need a loan, and that is a first step in the type of loan you will need.
 
If you fall under the first reason for the loan (starting a business), it’s virtually impossible to get a loan in the company’s first year. Lenders require cash flow to support repayment of the loan, so startups are typically immediately disqualified from financing. In this case you may need to rely on business credit cards,family investment, crowdfunding such as GoFundMe or Kickstarter, or personal loans or a micro loan from a
non-profit lender.

For those businesses with a year or more of history and revenue, you have more financing options, including SBA loans, term loans, business lines of credit and invoice factoring.
 
 
Determine the best lender.

Obtaining a small-business loan can come from several places, including banks, nonprofit microlenders and online lenders. These lenders typically will offer options such as term loans, lines of credit, and accounts receivable financing.

If you qualify for a loan, you want to choose the one with the lowest APR, as long as you are able to handle the loan’s regular payments.


When it comes to obtaining a loan, approach a small-business-loan in a similar fashion to approaching a loan for a car. Once you determine which type of lender and financing vehicle are right for you, compare two or three similar options based on APR and terms.

• When to go with a bank:
  • You have good credit
  • You have collateral
  • You’re not in a hurry for the money
• When to use “micro lenders”:
  • You can’t get a traditional loan
• When to use other/online lenders:
  • You don’t have collateral
  • You need funding ASAP

 
 
Find out if you qualify
 
The next key to securing a loan is to understand your credit score and to understand where you stand on the credit score spectrum. You can get your credit report for free from each of the three major credit bureaus — Equifax, Experian and TransUnion — once a year.

• Side note: Banks, more often than not, want borrowers with credit scores at least above 680. If your credit score falls below that threshold, consider online small-business loans for borrowers with bad credit or loans from a nonprofit microlender.
  
  
  

Some other factors to consider are that lenders will also want to know how long your business has been in business. You need to have been in business at least one year to qualify for most online small-business loans and at least two years to qualify for most bank loans. Many online lenders require a minimum annual revenue, which can range anywhere from $50,000 to $150,000.

• Side note: Some online lenders require daily or twice-monthly repayment on the loan, so factor that into the equation on if you can repay in those terms. To comfortably repay your loan each month, your total income should be at least 1.25 times your total expenses, including your new repayment amount.

 
 
Get your documents together


So, you’ve compared options and are now ready to make the “ask” be known. It’s time to apply for the loan that fits your need.  You can apply for multiple small-business loans within a short time frame (about two weeks) without a negative effect on your personal credit score. So, depending on the lender, you’ll need to submit a combination of the following documents with your application:

• Business and personal tax returns
• Business and personal bank statements
• Business financial statements
• Business legal documents (e.g., articles of incorporation, commercial lease, franchise agreement)
  
  

Getting those documents in order early will help to have things organized when you seek out the loan and beyond. Having docs in order at all times is a wise move regardless of applying for a loan or not.
 
Getting the right help
 
While every situation is different, one area of importance is using a trusted resource to help navigate these waters. With PKJ Consulting we have helped many businesses get the fins avail assistance they need to execute their dream. PKJ Consulting works with Wells Fargo and can assist you with your lending needs! Contact us HERE to learn more about these services.