Getting a small-business loan is a major hurdle facing small businesses, mainly due to tight lending standards by banks. But obtaining outside financing is often necessary to start or grow a business or cover day-to-day expenses, including payroll and inventory.
Getting a small-business loan requires 5 steps, including finding the right loan type and if you qualify.
1. Ask Yourself First
Lenders will ask you this question, and your answer will likely fall into one of these four categories. They are how you start your business, manage-day-to-day expenses, grow your business and have a safety cushion.
2. Decide Which Type of Loan is Right for You
Your justification to require the loan will determine what kind of small business loan you are receiving.
When you are starting a business, having a loan in the first year of your company is nearly unlikely. Lenders require cash flow to cover the loan servicing, and startups are usually barred from financing immediately.
3. Determine the Best Type of Small-Business Lender
There are many sites where you can get small business loans, including banks, charity micro-lenders and online lenders. These borrowers offer products which include term loans, credit lines, and receivable financing accounts.
Compare two or three comparable choices depending on the average percentage rate (total loan cost). In addition, consider the terms until you decide the combination of lender and funding vehicle is right for you.
4. Find Out if You Qualify
Your position on the credit spectrum is one factor deciding which loans you ‘re going to apply for. That of the three big credit agencies-Equifax , Experian and TransUnion-will get your credit report free once a year. Many credit card issuers as well as personal finance portals, like NerdWallet, can get your credit score for free.
You need to have been in business at least one year to qualify for most online small-business loans and at least two years to qualify for most bank loans.
5. Gather Your Document
Once you’ve compared your options, it’s time to apply for the loans that fit your financial needs and that you qualify for.
You can apply for multiple small-business loans within a short time frame (about two weeks) without a negative effect on your personal credit score.
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