5 Key Steps for Getting Small Business Loan in 2021

Not every small business owner gets into the business with tunnels of gold and treasure at hand. Yet you need some money to make more money. Capital is the backbone of any small business. Whether you are yet to start the foundations for your start-up or small business, or you are already in the running and planning to expand or upgrade your small business, you will need some investment. 

This is where small business loans become your saviour. Most small businesses get financial assistance through business loans to get the business up and running. In the initial stage, the question ‘How to get a small business loan?’ might seem daunting, looking at the complex procedures and procurement process. But with proper records and a timely approach, you can increase the odds of getting a small business loan.

You will discover how to apply for a business loan in this article along with the steps to be followed to get the capital you need to get going with your small business without any hiccups in the process.

Have a solid plan

Having plans on what you are going to do with the loan money is basic 101 in applying for a loan. You must have a clear vision and a solid business plan before thinking how to get a business loan. This is the proper approach and will help you to a great extent in getting a business loan. Try to come up with a detailed presentation, elaborating on your business, objectives and how the procuring money will bring profits to your business. The purpose of this plan is to tell the lender that you will make profits and will be able to repay the loan on time and without any trouble. 

Settle with a number

Once you are clear with why you need the funds, the next vital question is how much funds do you need. Do research on the expenses and ground on a specific number. Take into account all the heads of expenses and the peripheral costs alone. For instance, if you are planning to buy a piece of equipment, remember to consider the peripheral costs such as transportation and installation. Knowing how much funds you will need can help your lender provide better financial solutions.

Check your line of credit

With a business line of credit, you can draw funds from a lender as needed. There will of course be a cap on the funds, but this will surely extend hands when you have financial gaps and in times of unexpected expenses. A line of credit is similar to your credit card, but using this you will have funds in your bank ready for your usage, just like a checking account. 

When you are a small business owner or a sole proprietor, there are chances for the lender to check your personal credit score besides your business line of credit. Banks or lenders can run through your credit history. So make payments on time and do not exceed your credit limit to ensure your credibility. 

Think if you can afford the payment

Proposing and getting a business loan might go smoothly, but things would not be sailing plain if you could not repay on time. Analyse your business’s finances, cash flow and determine how much you can repay each month. There are some online lenders that require daily repayment. So make sure you take all these into consideration.

Suzanne Darden, a finance specialist at the Alabama Small Business Development Center suggests “To comfortably repay your loan each month, your total income should be at least 1.25 times your total expenses, including your new repayment amount.

Factor in your collateral

Business loans can either be secured from banks or unsecured from lenders. If you are applying for a secured business loan from a bank, you will require business collateral. Business collateral can either be a piece of equipment or property that is liable for the lender to seize in case you cannot repay the loan.

Signing up for a loan with collateral can be risky, but on the other hand, increases the likelihood to raise the loan amount at a lower interest rate. 

There are some lenders who require a personal guarantee. This is a secured repayment assurance where you assure to repay the loan personally if your business cannot. Hopefully not, but to face the fact, lenders will come chasing your house or car in case the loan is not paid back. 

Compare the available options

Once you have sketched your business plan, determined how much funds are required, figured out how to utilize it and are ready to afford the repayment, the next step is to find the lender. Different types of lenders offer different financial solutions. So, do thorough research and analyse the options available for you. You have large commercial banks, direct online lenders, credit unions which are local community banks and peer to peer lending sites. 

Talking about the loan varieties, you have a term loan, which is the basic form of loan - the borrowed money can be used for any number of reasons like buying equipment, repair, business expansion or renovation. There is the SBA, Small Business Admiration loan, which is limited only to the people of the US. This type of loan is highly secured and has lower interest rates. But you have to jump through a lot of hoops to get your loan approved. Plus it takes a long time for the process. So, if you have enough time and resources to wait for some months, this loan will be a great deal.

Equipment financing is a type of loan dedicated to facilitating your equipment purchase. This fund can be invested in buying machinery, vehicles, forklifts and even computer hardware and software. Talking about software, if you are using QuickBooks for your small business, PayTraQer is a must-have for your business as it can sync your online payments into QuickBooks automatically.

If you are wondering how to get a startup business loan, you have dedicated business loans for that. There are also some business loans specific to managing payrolls. Do the research and find the loan that best fits your needs.

Submit your loan application

Once you have made all the necessary decisions and remedial actions to secure your loan, you can fill out the paperwork and submit with required documents. If you have followed the aforementioned steps, your loan processing will be plain sailing. Loan applicants with the proper paperwork on the table have a higher likelihood of loan approval. So get your gears ready and apply for a business loan!