Obtaining a small business loan isn't as easy as you might think. Small business owners looking for capital to take their business to the next level can face issues with eligibility, and the process of both applying for and receiving a loan is lengthy and time-consuming.
Want to speed up the process and make the loan application process go more smoothly? Evan Singer, general manager of small business loan application service SmartBiz, shared these tips.
1. Keep your documents in order.
First and foremost, keep your business records straight, Singer said, adding that the application process will be more seamless if you take the time to keep your financial, accounting and tax records up-to-date and accurate. Make sure your business has a system in place to keep everything organized.
2. Maintain good credit.
In addition to keeping track of your documents, make sure to pay your bills on time. You'll have to meet some type of credit criteria, so it's important to have the best credit possible. Avoid foreclosures, bankruptcies, charge-offs and late payments. While banks have different credit requirements, good credit is an essential part of the process, Singer said. [Understanding Different Types of Small Business Loans]
3. Know where the money will go.
Are you purchasing real estate or buying a truck? Perhaps you simply need the capital to make an acquisition. No matter the purpose, have a firm idea of why you need the money and how you'll use it, Singer advised. Be able to clearly present the use of your funds and the specifics of how the money will be used. Lenders have different requirements for the use of proceeds, so be sure to ask your lender before you get started.
4. Demonstrate sufficient cash flow.
If you're an existing business, banks want to see that you have demonstrated cash flow sufficient to make your monthly loan payments, Singer said. They'll do this analysis by looking at your past tax returns and existing debt. Singer added that if you're buying a business or starting one from scratch, you should be able to show detailed financial projections. Provide a financial plan that clearly illustrates you'll be able to make your monthly loan payments.
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5. Be prepared to outline your professional background.
Lenders will be interested in your business, but they'll also take a good look at you, Singer said. It's important to present your professional background in a way that's relevant to the business and shows that you're poised for success. If you've been in the business a while and have a substantial background in your industry, make that clear.
6. Understand that every bank is different.
While the Small Business Administration has specific eligibility criteria, not every bank will have an identical approval process. Once you've identified a few good prospects, ask for the lender's specific criteria or processes, Singer advised. Try to find out exactly whom they see eligible for the loan so you know what you're getting into before you apply.