10 Things to Know Before Applying for a Small Business Loan
Could your small business could use a little capital, but you’re feeling nervous about applying for a small business loan?
It’s true that the loan application process can be tedious and overwhelming. But you don’t have to be nervous about it.
In order to put your best foot forward, you’ll need to know a few things:
- Where do you start?
- What documents will you need?
- What questions will be asked of you?
That’s why we’ve put together this checklist to make the whole process go a lot more smoothly.
So read on to find out what you can expect.
Prepare to Impress The Lenders
You can apply online with lenders like Sunwise Capital with a simple click!
But before you do that, you need to understand that an approval on a loan request will depend on how well you present yourself, your business and your financial needs.
That best way to do this is to gather all of the relevant documentation and to know beforehand the answers to the most commonly asked questions.
Follow this checklist to step into the lender’s office with confidence.
1. Gather the Important Documents
Documentation requirements will vary from lender to lender. But we recommend you pull together all of the following:
- Legal documents, including licenses, articles of incorporation, copies of third-party contracts, commercial leases or franchise agreements
- Personal and business tax returns
- Financial statements, including profit and loss statements, personal financial statements and payroll records
- Disclosure of any asset liens
- Bank statements from the past 6 – 12 months
- A list of possible collateral
These are definitely the most common documents.
You should know that this first step is one of the more time-consuming parts of the whole application process. So set aside some time for it.
2. Check Your Personal and Business Credit Scores
It’s best to know these numbers and where you stand before you approach the lender.
That’s because your loan terms, interest rate and ability to get a loan are all largely driven by your personal credit score or FICO.
If you don’t know offhand what your business or personal credit scores are, you can access a free personal credit report once per year from the internet.
This report will include all three of your FICO credit scores.
3. Walk in with a Solid Business Plan
Applying for a small business loan without a solid business plan is risky business.
Lenders want the sense that they’re investing in a sure thing.
So be certain that your business plan clearly addresses the structure of your business, how it currently fills a market need, and your projections for its future growth.
4. Have a Background Statement for Your Business
This isn’t something that conventional lenders will necessarily require. But it could give you a leg up when lenders are considering you.
Especially if they want to gauge your experience in the industry for which you want this small business loan.
Your background statement can be something as simple as outlining your resume and experience, and/or the history of successes in your business.
5. Know Why You Are Applying for the Small Business Loan
This might sound elementary, but having the details of what you’ll use the funds for can help lenders determine whether you’re a worthwhile investment.
- Are you looking to expand?
- Do you want to add a second location?
- Is there a need to hire an accountant for the upcoming tax season?
- Does your business need more inventory for the holiday season?
- Are you waiting for someone to pay an invoice?
Be honest and have these details ready. The lenders appreciate it.
6. Have a Timeframe for When You Can Pay The Loan Back
This could be a span of months or years.
But knowing this before applying for a small business loan will help you determine how large of a loan you can afford, as well as what type of business loan or line of credit will be best for you.
7. Be Aware of the Kind of Small Business Loan You Need
Yep. There’s more than one kind of small business loan. You could go any of these routes:
- Traditional bank loans
- SBA business loans from banks
- Online small business loans
- VA business loans
With each sort of loan, there will be different qualifications, requirements and interest rates.
That’s why it’s crucial that you choose the type that will best fit your needs BEFORE you spend time pulling together an application.
8. Know How Much Financing You Will Need
Running a business isn’t a “one fare covers it all” venture. Take into consideration your extra expenses and what your price point is going to be.
Are you launching a new product and need to open a second store? Do you need to hire a web designer and SEO provider?
Have that calculation ready, and as close to that price point as possible. That way, you won’t bite off more than you can chew. But you won’t end up lowballing yourself either.
9. Be Clear on Payment Terms and Prepayment Penalties
The payment plans will vary from lender to lender.
One of the first things you should ask is if they charge a penalty for paying back your loan early. This is known as a prepayment penalty, though some business lenders refer to it as a prepayment discount.
Also keep an eye out for lenders who work the prepayment penalty into their payment terms. Ideally, try to find a lender that doesn’t charge anything for paying back your loan early.
Once you fully understand how the payment terms work when applying for a small business loan, the better off you’ll be.
10. Have A Plan in Case You’re Unable to Repay the Loan
While we know that you have every intention of paying off your loan, life happens sometimes.
Sales might be slower than projected or you suddenly have some unexpected expenses. It’s unlikely this will happen to you. And we hope it doesn’t!
Still, sometimes you have to fail to succeed. So be sure to set up a plan B with your lender so you can pay your loan back in full.
Get Applying for a Small Business Loan!
If you’re applying for a small business loan, be nervous no more. You’ve got all the information you need now.
And keep checking back for our newest helpful blogs about business. Our business is keeping you in business!
