Today, there are more traditional and alternative lenders willing to lend to small businesses. A small business loan could help you grow your business, conduct research and development, open new locations, provide employees with training, increase sales and marketing efforts, hire new employees, and more.
The following steps outline a reliable method for obtaining a small business loan:
1. Research Different Types of Small Business Loans.
The type of loan you require will depend on your needs as well as the length and terms of the loan. These are some of the available options:
· Small business line of credit
· Accounts receivable financing
· Working capital loans
· Small business term loans
· SBA small business loans
· Equipment loans
· Small business credit cards
To learn more about each of these loans and any others that may be available to you, please talk to one of our associates at BW Capital Solutions.
2. Research Lenders.
These are the main types of lenders:
· Online lenders
· Commercial banks
· Community banks
· Peer-to-peer lending sites
· Bank lenders backed by SBA guarantees
3. Consider How a Lender Will Analyze Your Profile.
A lender makes the call on whether or not to issue a loan to your business based on your “credit and risk profile.” Be prepared by ensuring you meet their qualifications. The following is a list of potential factors they take into account:
· Credit score/history
· Outstanding loans
· Cash flow
· Time in business
· Financial statements
4. Provide Organized and Up-to-Date Financial Documents.
Lenders may require a review (and sometimes an audit) of your financial statements and records. These include the balance sheet, income and loss statements, and cash flow statements. Make sure these documents are all detailed, accurate, and complete, and have your accountant review them to ensure they meet lenders’ criteria. Be prepared to answer questions regarding cash flow, gross margin, debt-to-equity ratio, accounts payable, accounts receivable, etc.
5. Be Prepared with Detailed Information for Items on the Application.
The following is a list of typical items required on a Small Business Loan Application:
· Your name
· Business name and any DBA’s associated with the business
· Federal Tax ID
· List of executive officers and information about their backgrounds and experience
· Legal business structure (LLC, S corporation, C corporation, etc.)
· Financial statements for the past 2-3 years
· Projected financial statements (for the future)
· State filings for the company (i.e. Certificate of Incorporation, foreign corporation filings, good standing certificates)
· Copies of insurance policies
· Amount of loan
· Business credit report
· Any collateral available
· Principal shareholder or business owner’s financial statements
· Business plan or Executive Summary
· Complete business tax returns for the past 2-3 years
· Business bank statements
6. Specify Loan Amount and the Expected.
Be prepared to provide a reason(s) for requiring the specific loan amount you are requesting (what, specifically, with the money be used for?).
7. What Security or Guarantee Can Be Provided?
A lender may require a security interest to ensure the repayment of the loan. This could come in the form of company assets, such as equipment or property. A personal guarantee by the principal business owner could be required, putting their personal assets at risk.
8. Analyze the Key Terms of the Loan.
· What is the interest rate and can it vary?
· How often is interest payable?
· When is the principal due or how is it amortized?
· What is the loan origination fee?
· What cost and fees will be applied?
· Will operating limitations be imposed on your business?
· What are the circumstances of default?
· Is a security required?
· Does the lender require periodic reports?
· Are there stipulations on how the loan may be used?
· Is there a prepayment penalty?
9. Review Your Online Profile.
Above and beyond the information you provide about your business, a small business lender will do their own research on you and your company. Ensure your company and the principal owner’s websites, social media sites, review pages are accurate, professional, and up-to-date.
10. Become as Familiarized with the Small Business Lending Process as Possible
Small Business Loans come in all shapes and sizes. Call or stop by our office to speak with one of our experts on Small Business Loans of all kinds. We are here to help and answer all questions! The more informed and prepared you are, the more likely you are to be successful in obtaining a loan!