Banks and other financial institutions readily offer loans to small, medium and large enterprises. Loans are used to grow a business, for expansion, and research and development. They are also used to enhance marketing efforts and hiring new personnel.
As such, many business owners will seek business loans for the above reasons. If you feel that your business is in dire need of some financial boost, below are steps you could use to secure financial aid.
Understand the various small business loans
There are various loans for small businesses. It all depends on the amount of money you seek, the repayment period and the loan policy.
Some types of loans available include: small business lines of credit, accounts receivable financing, working capital loans, small business term loans, equipment loans, small business credit cards, and small business administration (SBA) small business loans.
However, these different types of business loans vary from one lender to the other.
Do in-depth research on available lenders
In this day and age, there is a multitude of lenders that would be willing to finance your small or medium enterprise. Most of these lenders can easily be found on the Internet with a click of a button.
Some of the main types of lenders include; direct online lenders and sites, commercial banks, local community banks, bank lenders backed by Small Business Association (SBA) guarantees.
Try to figure out how the lender will assess your eligibility
Lenders are in business and will do everything in their power to minimize the risk of losing money to borrowers. As such, all lenders will decide whether you qualify for the loan or not based on your credit and risk profile.
To further comprehend this, below are some of the factors that lenders will look for before financing your business:
- Your credit report
- If you have any outstanding loans
- Your cash flow
- Your business assets
- The duration in which your business has been operating
- If you have any investors
- Your financial statements
Get your financial statements in order
The amount of money you are looking to borrow will determine how much scrutiny your financial statements will undergo. As such, it is good for you as a business owner to get them in order. Double-check that they are correct and thorough.
The balance sheet, income and expenditure records as well as the profit and loss statements should be well filled.
When these records are issued, the lender will carefully review them as ask questions where they are not sure. To be on the safe side, have your accountant thoroughly go through all these statements to ensure a seamless lending process.
Most lenders prefer financial statements that have been audited; preferably by a certified public accountant. However, since audits are a bit costly, small business owners tend to get all their statements then have a CPA review it which is faster and cheaper.
Gather all the necessary documentation
Make sure you go to your lender well prepared with all relevant documentation. Such documentation includes your business name, tax ID, certificate of incorporation, and business bank statements.
As earlier stated, lender requirements vary. As such, the type of documentation required by lenders will also vary. If you are not sure what is required, you could make a phone call to the lender you are interested in and ask for a list of the requirements.
Be prepared to specify the amount of money you need and its use
One of the first questions your lender will ask is how much money you are looking to borrow and its expected use.
The lender will want to know whether it’s for expansion, hiring more employees, increasing inventory, enhancing marketing efforts or any other business-related venture.
Know what guarantee or security you can offer
A lender’s main concern is whether you can repay the loan or not. That is why they will always ask for collateral. Most business owners will put up business assets as security.
There are some cases where the lender will ask for a personal guarantee from the business owner. Try and avoid this as much as possible as it puts your personal assets at risk.
Analyze the lender’s terms
Don’t take money blindly from lenders. Get to know their interest rates and if there are penalties. Read their policies well to see whether they are acceptable.