10 Small Business Loan Application Tips

Several traditional and alternative lenders offer small business loans. Small business loans can help you to grow your brand, venture into new territories, fund research, and development, increase your sales and marketing efforts, and hire more staff among others. In this article, we will be looking at ten small business loan application tips.

Here are 10 Small Business Loan Application Tips:

1. Understand the Various Types of Small Business Loans You Can Take

The financial market has different types of small business loans. These options vary depending on the specific terms of the loan, repayment period, and your business needs. Most financial institutions tailor various products to reflect the needs of different small business owners. The repayment terms for a small-scale gardener cannot be the same as that of a person who owns a grocery or food kiosk. You need to go for the type of loans that are product-specific if you want to get maximum benefits, but when in doubt, you can consult experts like Kapitus on what type you need.

2. Research Available Lenders

The market has a long list of vendors than ever before who are willing to give out small business loans. Some of them include direct online lenders, merchant cash advance companies, large commercial banks, local community banks, peer-to-peer lending sites, and bank lenders who are backed by CBA guarantees. There is a long list of financial service providers under each category. Therefore, you have to choose the type of lender before narrowing it down to a specific firm. The guiding principle is to make a choice that you are most comfortable with.

3. Anticipate How the Lender Will View Your Risk and Credit Profile

Lenders evaluate the risk profile and credit history of the borrower to make a judgment on whether they will fund the project or not. Lenders evaluate several factors before making a decision to give you a loan or not. Some of the factors include credit score or report, cash flow and outstanding loans, assets in the business, a period in business, investors in the company, and financial statements. You can evaluate yourself and see which sections may fail you. You can begin to correct some of these issues even before the application for a loan. It is good to ensure you have a good credit score before making your small business applications.

4. Keep Your Financial Statements in Order

The lender will carefully review your accounting records and financial statements depending on the size of the loan application. It is one of the most important small business loan application tips. You have to make sure that this information is thorough, correct, and complete. Include cash flow statements, income and loss statements, and your balance sheet to backup your data. The lender will analyze your account payables and receivables, debt to equity ratio, gross margin, and cash flow and hence you should be prepared to answer all the questions. Let a professional accountant look at your record and help you anticipate some of the issues that the borrower may ask. A CPA can help you review your statements because most small businesses can’t incur the audit costs.

5. Gather Detailed Info for The Small Business Loan Application

While applying for a small business loan, you will need to provide several documents and information about the business. It is always good to be organized and prepared. Some of the details you will need to provide include the tax ID, business license, legal structure, bank statement, business credit report, tax returns, business plan, and potential collateral among others. Put all these details close because they will help to support your loan application.

6. Be Ready to Specify the Amount You Wish to Borrow and How You Expect to Use the Proceeds

The lender will want to understand the amount of funding you will need and how you expect to use the business proceeds. Will you use the loan on capital or equipment expenditures? Hiring or expansion? Enhancing marketing efforts or sales? Development of technology and new research? Development of new products? or expansion into new territories or facilities? These institutions have financial advisors who will inform you whether the business idea is viable or not. The information will also help the lender to make an informed decision because both over-funding and under-funding aren’t good for any brand.

7. Determine the Guarantee or Security You Will Provide

The primary concern of any lender is your ability to pay back the loan. Lenders will only want collateral as a fallback if you are unable to repay the loan for one reason or another. Having good collateral can even give you the loan on better terms. You can either use your personal or business assets for this purpose.

8. Analyze the Key Terms in the Proposed Business Loan

You need to compare the various terms that different lenders propose and get the ones that will work well for you. Take your time to go through the contract because some things are tiny and you may not realize them quickly. Look at the interest rates and penalties of any late payment. Will you be paying the interesting weekly or monthly? Does the loan have any other charges? After how long can you get a top-up? Is there a loan origination fee? Will you need collateral or security etc. This could be one of the key tips when looking for small business loan application tips.

9. Review Your Online Postings and Profile

Some of the due diligence that small business lenders do is to review the online information that is available for your brand. Woe unto you if you have a bad rating or customer reviews. Review all this information to see whether you can make deletions or changes to some of this information.  There is little you can do when the information is published on a third-party site. However, you can still comment to provide an explanation of the same.

10. Educate Yourself on the Lending Processes of Small Businesses

You will be able to make better decisions when you have a lot of information on the application process for small business loans. Learning these procedures will help you to apply for the loan successfully. These small business loan application tips will help you to make an informed decision that will help your brand to grow.

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