If you know how to apply for a business loan, you’ll have less stress and a better chance of acquiring one.
If you don’t know how to secure a business loan directly from Ipass, you may find it challenging to navigate the application and lending guidelines. When it comes to obtaining capital for your small company, breaking it down into smaller, more achievable stages may help you get the money you need.
1. Determine your company’s funding needs by identifying the sort of loan you need.
To get a small-business loan, lenders will want to know why you need it. There are three types of company loans, and your response will likely fall into one of them:
- Traditional term loans or SBA loans. SBA loans, for example, have a maximum borrowing limit of $5.5 million. Loans for acquiring new equipment or vehicles are also available from a wide range of lenders.
- Business credit cards and personal loans for start-ups. Companies in their first year are often unable to get business loans from these lenders since they do not have the necessary cash flow to enable loan repayment. For now, you’ll need to find alternative sources of money.
- A line of credit is provided to a company for its operations. If you’re trying to keep track of your daily spending, this could be a good idea. This kind of revolving credit gives you the freedom to utilize the money as you see fit, whether for payroll or unplanned maintenance.
2. Assess your ability to get a business loan.
To see if you’re eligible for a small-business loan, answer the following questions:
What is your credit rating?
Each of the three leading credit agencies, Equifax, Experian, and TransUnion, will provide you with a free copy of your credit report. Many credit card companies and personal finance websites, like NerdWallet, provide free access to your credit score.
According to Suzanne Darden, a finance expert at the Alabama Small Business Development Center, businesses with credit ratings of at least 680 are eligible for low-interest business loans from banks. Small business loans for borrowers with terrible credit or loans from a charity microlender may be an option if your credit score falls below that criteria.
The length of time you’ve been in operation
To qualify for most online small-business loans, you must have been in the company for at least a year, whereas most bank loans need two years of business experience.
Is your income sufficient for you?
Many lenders demand a minimum yearly income of $50,000 to $250,000, depending on the kind of loan.
Consider short-term business loans, SBA microloans, or even equipment finance if your income isn’t large enough.
3. Decide how much you can afford to pay each month.
- When it comes to your company’s cash flow, your monthly loan repayments must be within your financial means.
- Make careful to account for specific internet lenders who expect daily repayments.
- Including your revised payback amount, your monthly income should be at least 1.25 times your entire costs to quickly repay your loan, according to Darden. Your business’s monthly revenue of $10,000 is offset by your cost of operations of $7,000 per month. This means that you should be able to afford a $1,000 per month payment on your loan. You make $10,000 a year, spending $8,000 a year.
5. Determine whether or not to collateralize the loan and how you intend to do so.
- If you default on a secured loan, the lender will be able to confiscate your company’s assets, such as property or equipment.
- Liquidity might be dangerous, but it increases your borrowing capacity and lowers your interest rate.
- Even unsecured loans may need a personal guarantee from the borrower. So if your company can’t pay back the loan, you’ll be personally liable, and a lender might seize your home or vehicle if you don’t.
5. Compare small-business loan options.
Online lenders, banks, and charity microlenders are the three most common places to get a loan for a small company. Each offers a variety of items, yet one may be superior to another under specific circumstances.
When to use internet lenders for a business loan:
- You don’t have any backup.
- When it comes to running a company, time is of the essence.
- You need money now.
In the range between $1,000 and $5 million, online lenders offer small-business loans and credit lines. These loans have annual percentage rates ranging from 6% to 99%, depending on several factors, including the lender, the loan type and amount, the period of repayment, the borrower’s credit history, and the presence of any needed collateral.
Even though their APRs are higher, these lenders’ acceptance rates are higher, and they may finance loans in as little as 12 hours, which is much quicker than conventional banks.
When to get a bank loan for your company:
- Have been in business for a minimum of 2+ years
- You’ve done well financially.
- You’re not in a hurry for money.
Term loans, credit lines, and commercial mortgages are traditional bank choices for purchasing or refinancing real estate.
The U.S. Small Business Administration’s 7(a) loan program offers small-business loans, short-term microloans, and catastrophe loans to small businesses via banks. The SBA will provide up to $5.5 million in the fiscal year, with 7(a) loans averaging $704,581 on average.
A service of the House of Representatives research committee. Small Business Administration (SBA) microloans are averaging $13,000 each.
Long-term fixed-rate financing for company acquisitions of fixed assets such as land, buildings, or equipment is also available under the SBA’s 504 loan program.
Due to reduced sales volume and cash reserves, obtaining a bank loan for a small firm might be difficult. Many small-business owners are left holding the bag when it comes to getting a loan because they have poor personal credit or none at all.
While banks take longer to finance than other choices, the interest rates they charge are often lower.
When to use a microlender for a business loan:
- You have a poor credit rating or no history of credit.
- You’ve just started a new company.
- A conventional loan is out of the question.
Microlenders are non-profit organizations that provide short-term loans of less than $50,000 individually. In general, the interest rate on these loans is more significant than on bank loans. The application procedure might belong if it requires the submission of a comprehensive business plan, financial documents, and an explanation of how the loan will be utilized.
In addition, the loans are “micro” in size by definition. These loans, on the other hand, maybe ideal for small businesses or startups who are unable to get standard bank loans owing to a lack of operational experience, bad personal credit, or a lack of collateral.
6. Compile the necessary document
Make sure you have all of the essential papers before submitting your application. Small-business loans may be obtained more quickly if these documents are located and readily accessible.
To get a loan, you’ll need to provide the following:
- Returns on personal and business taxes.
- Bank statements for both business and personal use.
- Financial information for a company.
- Legal papers that govern the conduct of a business (e.g., articles of incorporation, commercial lease, franchise agreement).
- It’s time to put together a business strategy.
7. Apply for a small business financing
It’s done! You must first evaluate which sort of loan and lender is best for you to apply for a loan.
First, compare the conditions and annual percentage rates (APR) of at least two to three comparable loan choices. The most straightforward approach to estimating the yearly cost of a company loan is to utilize the annual percentage rate (APR), which includes all loan costs and the interest rate.
Apply for the loan with the lowest APR among the ones you’re eligible for (as long as you can afford to make the monthly installments) and submit the required documentation.
The credit agencies don’t distinguish between requests for business and personal credit. If you apply for a small business loan using just your personal credit history, you risk having your credit score lowered.
Questions and Answers
How can I acquire a small-business loan for the first time?
To be eligible for a small-business loan from a bank, you’ll need a high personal credit score, good financial information about your firm, such as revenue, and operating for at least one year. You may also require collateral. Online lenders have a lower bar to meet. Consider using a company credit card as an alternative if you’re just getting started. Check out our list of sources for startup financing.
Is it difficult to get a small-business loan?
To get a small-business loan, you’ll need to have an excellent personal credit score (about 700) and a steady flow of income from your firm. Some typical reasons why a company loan application may be rejected include these.