Small business loans get way overcomplicated by most banks and lenders.
By overcomplicating the process and how they describe it, small business loan lenders can create a smokescreen of confusion which makes potential borrowers feel as though they should just trust whatever they get told.
We're here to tell you that business loans don't have to be complicated.
In fact, the process of applying for one can be very simple.
In this piece, we've gone through the practical steps of the loan application process, detailing exactly what you need to know in order to prepare your business prior to making the application.
What Is a Small Business Loan?
A small business loan is any agreed sum that a bank or other lending institution lends to a small business is considered a small business loan.
A small business loan is built in two parts: the amount and the terms.
The terms surrounding the arrangement - such as the amount being lent, the repayment amounts and the schedule of repayments - must be agreed by both the borrower and the lender before any money can be lent.
Once this agreement takes place and the money is lent, the borrower then takes care of the monthly repayments within the allotted time.
There are several variations of small business loans and the benefits attached to each depend on the loan’s intended use.
The variations can all be grouped into the categories of unsecured and secured loans.
A secured loan requires the borrower to put up one or more assets as collateral, such as a property, home equity or car.
The idea is to provide some security to the lender in the event that the borrower cannot pay the loan back.
At that point, the lender can then legally seize the asset(s) to cover any associated losses.
An unsecured loan is the opposite as the lender requires no assets for security.
This is more well suited to businesses that do not have assets to offer as collateral.
The requirement in this regard is usually a personal guarantee, which means if the business cannot repay the loan, then the business owner becomes liable.
Why Apply for a Business Loan?
Business loans are great for providing the capital you need to grow your business.
Here are the most common reasons business loans are used:
- Cashflow management
Cashflow management can be challenging for every business. In cases such as those where you need cash to cover a large invoice with operational implications or those where you have large bills to cover, a business loan is a great idea.
- Expansion funding
A business loan is perfect for covering the costs that stack up as your business grows and transitions, whether that growth comes in the form of expanding the workforce or the premises.
- Inventory purchases
If your business sells products, you need either raw materials to make the product or stock to sell depending on which you do. The additional inventory you need can be financed by a business loan and you can then convert said inventory to cash. In fact, having the extra cash allows you to buy said stock in bulk, which is great for saving.
- Equipment investment
You can save yourself quite a bit in the long run by making investments in quality equipment. Using a business loan makes for easier financing for equipment purchases. Also, it is beneficial to your business to choose a repayment plan that allows for a better cashflow.
Having enough competent staff is vital for your business’ success. However, adding to your staff complement can be expensive due to initial wage expenses and recruitment costs. A business loan can help you take care of these.
- Company vehicle purchase
Vehicles help many businesses better deliver their products and services. If you need to fund the purchase of one to improve your own offerings, a business loan can make that happen.
- Marketing strategy improvement and implementation
Marketing is tantamount to getting the word out about your brand to potential customers, however, the costs associated with it can be on the hefty side. A business loan can help you cover said costs and can even allow you to hire a consultant to help you come up with a sound strategy.
How to Apply for a Business Loan
If you are interested in quickly acquiring a loan and having a streamlined process, the steps below are recommended to help ensure that you get the loan approved.
1. Know What You Want From Your Loan
Before you even look to get a loan, you need to figure out how exactly you plan to spend it on.
Many loan applications require a summary for your intent or a detailed business plan.
You also need to establish a figure that is not only enough for your needs but also one that your business can pay back in the required time.
You can choose a convenient repayment term by using your cash flow to determine what you can afford to pay monthly.
2. Consider Your Business’ Credit History
Business credit scores exist just as personal ones do.
This is checked by lenders when an application for a loan is made to them. By being aware of it throughout your tenure as a business owner or manager, you stand a better chance of improving it and getting your loan approved when you need one.
If the score is low, you can improve it by covering daily expenses with a business credit card or by paying bills early.
3. Review Finance Options
After completing the prior steps with surety, the next step is to shop around to explore the various finance options available to you.
Not only do you need to find a lender that can accommodate your desired repayment terms, but you also need to ensure that the service being offered suits you; many lenders have slow service and response time, so be sure to look for a lender that shows good communication skills right from the off.
4. Loan Turnaround Time
Processing times for loans vary with lending institutions. Online lenders for example have a much shorter turnaround time than banks. This is so as the online lenders tend to have a quick application form and a shorter review process.
If time is a huge factor for you, check with the lender before you apply.
5. Verify Your Business’ Eligibility
Your business must meet the eligibility requirements set by a lender before it is accepted for a loan. These requirements can range from your operational tenure to your numbers.
To avoid wasting time, ensure you check and meet a lender’s requirements prior to applying for a loan.
6. Get Your Business Plan Ready If Necessary
As stated before, the possibility exists that a lender may require a business plan as a part of the application process. This plan requires an in-depth description of all operational areas of your business and how you plan to move forward. Some lenders only require a summary of your spending intentions.
Ensure you do research to find out how to draft a business plan and what to include before doing one.
7. Get Your Documents Ready
Documents are required by all lenders as a part of the loan application process. The documentation typically includes things such as earnings, proof of business ownership, etc.
Ensure you check beforehand what is required and ensure you have it all in place so you can enjoy a smooth process.
8. The Application
After you have gone through the prior steps, you can go ahead and begin with the completion of the application form.
Once you have completed said form, remember to review it to ensure all information is entered correctly.
After you apply, the turnover time depends on the type of loan and the lender. Some can approve you in hours while others can take weeks.
We use automation technology to ensure our clients receive a fair decision within seconds of applying.
Should you be accepted, we then give you some information to review and you'll be required to sign terms prior to receiving the loan.
As soon as we receive your documents back, the funds are then transferred straight into your bank, no hassle at all.
And that's it. Applying for a business loan made simple. Are you ready to apply for a small business loan? Click below to see how much you can borrow.