Capital is the lifeline of every business. For business start-ups or even existing owners, securing capital is key, especially for a small business. Many up and coming business owners find that being approved for business loans fast is a challenge and they don’t even know where to begin. Below is a list of simple yet practical steps on how to apply and be approved for business loans fast.
How to Get Approved for Business Loans Fast
Decide the Purpose of the Money
There are many reasons someone might need a business loan. To be approved, the loan must be for a sound business purpose. The utmost aim of the loan should be starting a project that will generate profit and aid you in paying back the loan. Some legitimate purposes include purchasing new or maintaining existing equipment, long term software development, large seasonal sales production, and real estate. Unprofitable reasons include purchasing non-essential business assets, financing ongoing losses, and office build outs.
Build a Relationship
Firstly, it is very important to start building a good relationship with your lender at the bank before your business is in need of a loan. Ensure that they are aware of the business and its aims and that you are maintaining contact before you start looking for any assistance. Keep in mind that business people venture into business with people they know, like, and trust. In any case, trust is a win-win situation, and lenders will only lend you money if they have faith in you. Be truthful and open.
Decide the Amount of Money You Need to Borrow
Create a budget control plan so as to project the amount of money needed to fund your project. Most small businesses fail due to requesting a loan that is not enough to accomplish the project. Underestimating the amount of capital needed can lead to unnecessary stress and an incomplete project, or even worse, unforeseen debt. You should also be sure not to be overstretching what you need – create your plan based on what you need and nothing else.
Know your Scores
It is critical to know that lenders will pay a lot of attention to your financial history. If your business is brand new and has no credit history, they will check your personal score. This means that you need to have your credit score in order before trying to apply for a business loan. If your score is lower than what the lender would like to see, you will likely be paying a much higher rate of interest. To qualify for a loan the lender will check that:
- Personal debt payments cannot surpass 33% of gross monthly income.
- Credit score: Too low a score will either lead to the rejection of your application or a higher interest rate.
- Time in business: Businesses which are 2 years old and have a record of incoming capital receivable are given unsecured working capital lines and terms to loans by lenders. The newer your business, the harder it is to qualify for a business loan.
- Report on cash flow: Most lenders lend money on basis of the firm cash flow. Cash flow margins measure the ability of the firm to survive in the long run.
- Report on the firm’s risk: A small business owner should find out their business’ rating on the SIC codes generated by the government.
Find a Lender
Simply put, look for the best lender who will satisfy your business loan needs. Choose your lending institution carefully. For the most part, larger banks tend to shy away from small loans. However, the following is a number of other lending institutions you can choose from:
- Non-bank lenders: This refers to the use of companies such as Fundera. Non-bank lenders are looking to get higher interest rates.
- Commercial Banks: Commercial banks are traditional loan providers.
- Micro and alternative lenders: Prosper and The Lending Club peer-to-peer sites are great sources for getting business loans fast. Also, crowdfunding sites for instance Kickstarter and IndieGoGo are known to provide loans below $10,000.
Loan Application Package Preparation
This is the preparation of the paperwork in order to apply for a loan. Different lenders may require more or fewer documents, but in general, the loan package will include:
- A strong and detailed business plan.
- Financial statements and projections.
- Business credit history and personal financial position, which must include 3 years of tax returns.
- Cash flow projections for at least one year.
During loan processing, your bank will review and verify all the information and documents. Paying careful attention to detail throughout the process and maintaining realistic expectations can help make the wait for your loan as quick and painless as possible. Wait for the feedback, which usually happens within 2 to 4 weeks. Check in every week for loan status updates. Moreover, be in touch with your lender in case they need additional information or documents. And finally, you need to keep tracking your loan reports.