Very often clients will come to us asking how hard we think it will be for them to get a small business loan. So we decided to address some of the most important elements involved with applying for a business loan in the hopes of clarifying this question.
First off, you need to know what type of funding you qualify for—if you're not sure, you have to ask questions. Secondly, consider timeframe—when do you need the money. And finally, what can you do to show potential lenders that you're a worthwhile risk.
Determining Loan Type
In trying to figure out whether or not getting a loan will be a possibility, start with the basics. In other words, ask yourself how much you'll need when you'll need it and can you afford it—this, perhaps the most important question.
Also, consider what you plan to use any funding received for—this will help determine the exact type of business loan you'll most likely require. An example would be, you're looking to purchase new machinery for your construction business. Odds are an equipment loan is what you'll be applying for. Or if you simply need an influx of cash to weather a stormier period, then perhaps a short term loan could be your ideal solution.
Also, when you need the money is going to factor into loan type. If for instance, you need money quickly, whether to jump on a piece of property or some office space, for example, online loans that can fund you in as little as two days might be your best bet. If you're not pressed for time though, you can shop around a bit, and look into more traditional lending routes.
Most crucially, really take the time to evaluate how much debt you can currently afford. Getting in over your head and then defaulting could destroy your credit not to mention cause a host of long term problems for your business. There are some flexible programs out there that allow for monthly, weekly or even daily payments. Depending on what you decide you can afford, your repayment plan will also factor into the loan type.
Choosing the Best Lender For You
Fortunately, there are a ton of lenders out there offering a variety of programs for small businesses. From traditional banks to credit unions, to alternative lenders, you are bound to find someone willing to loan you the cash your company needs. Once you've identified the kind of funding you think you may want to apply for, this will make choosing your ideal lender easier.
Short-term funding
This is a great loan option for those who need a cash flow boost for their business. You can generally apply at either a bank or an alternative lender—though the latter is more adept at getting companies this type of loan in a matter of days. Things to keep in mind with short term loans: repayment is generally 3 to 18 months. Amounts are usually 500k or less. Interest rates do tend to be a bit higher; however, you're paying over a much shorter period of time versus a long term loan.
Long-term funding
These are the traditional loans most think of when they think business loan. They are harder to qualify for, and you do have to wait a longer period of time before you actually get funded. These types of loans are most often issued by banks. A consideration: they have lower interest rates, but then again you could be paying over the course of five to ten years.
SBA loan
The Small Business Administration (SBA/) is in the business of helping smaller companies get access to the loans they need. They essentially guarantee a portion of the money so that if you do default, the bank will still get repaid. As with traditional long term loans, they take longer to process and they are a bit harder to get approved for.
Applying For Your Loan
While not all lenders have streamlined the process, most have. This is great news for small businesses as before the application phase was indeed tedious. Even traditional banks have started to use online applications to facilitate the process. Better yet, some lenders have made it possible to apply right from your phone or device.
When applying you will need to provide not only the application but also requested documents, these might include (among other items/): driver's license, bank statements, tax returns, profit and loss statements, and whatever else the lender asks for.
Getting approved really is going to depend on a number of factors having to do with both your business and the lender themselves. They will consider such things as how long you've been operating, what sort of revenue you bring in if you have any collateral, what type of credit score you have, in addition to other factors as well. The decision could take as little as 24 hours (more likely with an online lender/) or weeks if not months with traditional banks.
Some things that you can do to better your chances…Be organized. Have all documentation ready to go. This also helps to streamline the process, as the faster you can get the lender the requisite paperwork, the better. Be honest and forthcoming. Exaggerating things such as cash flow and revenue are only going to get your application flagged. Most of all are patient…Maybe you're not quite ready to apply for a business loan. Maybe you need to boost your credit score or pay off some debts. Remember, don't put yourself in a position from which you cannot successfully emerge.
Getting Your Small Business Loan
In the end, it really is all about understanding the process. Hopefully, this breakdown has given you some greater insight into what it takes to get that business loan you may need.
Always do your homework first—in this case, that homework involves taking a close look at your business, what your current financial standing is, and what any type of loan could potentially do for you. From there you want to start reaching out to lenders that you think to offer the best solutions.
First Union would love to discuss your financing needs. We have a variety of lending programs to fit all types of businesses. Call today and we can get you the cash fast!