Getting a business loan can seem like a daunting task at first. Many people simply do not know the first thing about obtaining a business loan. Others think there are no easy business loans for people with bad credit. Though both may be true, it is also accurate that most people need support from an outside source to help get their company off the ground. Before you start applying for a business loan, there are a few things you need to understand about your and your business’s situation. Here are five things you should consider:
• Understand Why You Need the Loan
No matter where you go looking for a loan, the lender is going to ask you specifically why you need one. There are a few common responses that they anticipate receiving, including: to start a business, to grow a business, to have a nest egg/safety net fund, or to help ensure that daily operations run more smoothly.
• Educate Yourself on What Loan is Right for You
Outlining where you are in your business venture will not only give you a better understanding of your reason for a loan, but it will also help to determine what loan is right for you. Most startups have at least a few options available to them since many banks like to have money coming in (revenue) before they lend money out. There are options for people starting out or who are looking for quick business loans even though they have bad credit besides crowdsourcing, asking family or friends, or taking out a personal loan. For companies that are at least a year old, options like term loans, business lines of credit, SBA loans, and invoice factoring can be good options.
• Find the Right Lender for Your Small Business
Many of the loans we just mentioned – terms loans, accounts receivable financing, and lines of credit – can be obtained from banks, online lenders, and not-for-profit micro-lenders. How do you choose from those three? You will want to use a bank if you have good credit, you do not need cash fast, and you have collateral. You will want to use a micro-lender if you cannot obtain a traditional loan because of the size of your business. And finally, people tend to use an online lender when they need money fast, their company is young, or they have insufficient collateral. Online lenders tend to have higher approval rates and a quicker turnaround on funding your loan.
• Stay on Top of Your Credit Score
Even in your personal life, it is a good idea to be aware of your credit score and constantly be working to improve it. This score is what lenders use to determine the type of loan, the amount of money, and the duration of loan that you are eligible for. The major credit bureaus that monitor your score are Equifax, Experian, and TransUnion. Another option to check your score is by obtaining your FICO score from one of the major credit card companies you use.
• Prepare Your Paper Work
Now that you have done all of the research and educated yourself on what you and your business need to succeed, it is time to move forward with applying for a loan. Remember that every time you apply for a loan, it will have a negative impact on your credit score (though not a significant one). You can apply for several loans within a small period amount of time. The documents that they will typically want you to present are your business and personal tax returns, business financial statements, personal and business bank statements, and any legal documents you may have for your business.
Now that you understand a little more about what you need to look at before you apply for a business loan, analyze these aspects of your company. Fast business loans are possible for people with bad credit, but you just need to do your research and prepare your paperwork for when the time comes. It can seem like a daunting task to apply for a business loan, but following these steps will get you headed in the right direction.