A business loan may help you start or grow your business, but comprehending the loan process, as well as stricter lending requirements, can be challenging. Breaking it down into manageable steps, such as understanding requirements, looking for lenders, and knowing how to apply for a small-business loan, will assist you in obtaining the funds your firm needs.

Here’s how to get a business loan in five easy steps.

1. Determine Whether You Are Eligible for a Business Loan

To determine whether you qualify for a small-business loan, answer the following questions:

How Long Have You Been in Business?

Lenders will look at how long your firm has been in business. Most online small-business loans need you to have been in the company for at least one year, and most bank loans require you to have been in business for at least two years.

Do You Make a Good Living?

Many lenders have an annual revenue requirement ranging from $50,000 to $250,000. Calculate your income and discover what the minimum is for each lender before applying.

Are You Able to Make the Payments?

Examine your company’s finances, especially its cash flow, and estimate how much you can afford to invest toward loan repayments each month. Keep in mind that specific internet lenders want daily repayments.

To swiftly return your loan each month, your income must be at least 1.25 times your total expenditures, including your higher payback amount.

Assume your monthly income is $10,000, and your monthly costs are $7,000 (rent, salary, and miscellaneous). According to this method, because $10,000 equals 1.25 times $8,000 in total expenditures, you should be able to afford a $1,000 monthly loan payment.

Do You Have Any Collateral?

Many lenders provide both secured and unsecured company loans. A secured loan requires the supply of business collateral, such as property or equipment, which the lender may seize if the loan is not repaid.

Putting up collateral is risky, but it may boost the number of loans you receive and earn you a lower interest rate.

Lenders may need a personal guarantee even for unsecured loans. This means that if your firm cannot repay the debt, you will personally reimburse it, and a lender may repossess your house or car if payment is not made.

2. Determine the Type of Loan You Need

Lenders will want to know why you need a small-business loan. Your response will almost certainly fall into one of three categories, determining which type of company loan is appropriate for you:

You want to establish your own company. Lenders wish to money flow to ensure loan payback. As a consequence, most firms are unable to secure business loans in their first year. Instead, you’ll have to rely on other types of startup finance, such as business credit cards and personal loans.

You want to keep track of your daily expenses. A corporate line of credit might be advantageous. This sort of flexible finance allows you to draw on it as needed to cover expenses like payroll or unanticipated costs like repairs, acting as a helpful safety net when needed. You want to grow your business, consider a typical government-guaranteed term loan, which often has higher borrowing restrictions.

3. Assess Small-Business Loan Providers

Loans for small businesses are available from three primary sources: online lenders, banks, and nonprofit microlenders. Each has numerous advantages in general, yet one may be superior in certain situations or also getting a co-founder is an option for your small business. Use StartHawk’s founder matcher and see if you can get your co-founder there.

4. Gather Your Documents

Before applying, make sure you have all of the essential documentation. Locating and making this information available as soon as possible would help ease the process of getting small-business funding.

You may be asked to produce a combination of the following papers, depending on the lender:

• Individual and company tax returns
• Bank statements may be used for both commercial and personal purposes.
• A company’s financial statements.
• Strategy for business.

Conclusion

You accomplished your goal! Now that you’ve determined which type of loan and lender is ideal for you, it’s time to apply and know how to get a startup business loan.

Begin by contrasting two or three comparable options based on loan terms, annual percentage rate, or APR. APR is the simplest way to understand the total cost of a business loan for the year since it includes all loan charges in addition to the interest rate.

Choose the loan with the lowest APR from those you qualify for and apply using the documents you’ve gathered. It’s important to note that credit bureaus don’t differentiate between business and personal inquiries. If you use your personal credit history while asking for a small business loan, your credit score may suffer, which is why it’s essential to go with your best bet.