Getting a small business loan is always a challenge for small businesses. In particular, if you’re a startup, securing funding for your business is laborious because of the tight lending standards. Be as it may, securing funding from outside is always necessary for the growth of your business. Be as it may, obtaining outside financing is always a necessity to start and grow your business.
Although loans for startups are available, getting approved for a loan is challenging but if you’re prepared, the better the chances.
And in the article below, we shall outline the top 5 strategies you can use to secure a business loan.
Determine Why You Need a Loan
Access to funding does not necessarily mean that you can take a loan. The first step is to determine why you need funding. Are you looking to start up business, buy equipment, pay staff, or expand to new markets? Having a clear idea of why you need a loan forms the basis of what type of loan you need and the amount you need.
Furthermore, many of the lenders will always inquire about the purpose of your loan. Some of the needs do not warrant for a loan. For instance, if you're looking to clear debts in a "sinking" business, few, if any, would even consider your loan application.
Determine the Type of Loan you Need
Once you’ve determined why you need a loan, it’s time to determine the type of loan. Here’s the thing, there’re a plethora of funding options in the market, and each type of loan is specifically suited for a particular purpose. For instance, asset loans are ideal for small businesses looking to add new machinery to boost the working rate. Working capital, on the other hand, is suited for businesses that are looking to improve on the day to day operations.
So, you need to determine which class of business loan will address your needs. Again, remember that the different types of loans usually come with different repayment terms and regulations. The Merchant cash advances, for instance, are paid through withholding a percentage of your daily/weekly credit and debits sales. This is as opposed to the term loans, which require you to pay fixed amounts on a monthly or any other pre-determined period.
Determine your Lender
You can get your small business loans from several places. Some of the common lending options for small businesses include traditional banks, crowdfunding, SBA, micro-lenders, non-profit organizations, Angle investors, Venture Capitalists, and more.
Choosing a loan lender, we recommend that you choose one that specializes in your domain. For instance, some specialized lenders will usually finance specific businesses in specific domains. Beyond specificity, look at the repayment terms and consider the option with the lowest APR.
Determine your Eligibility
The next step is to find out whether you qualify for a loan. Depending on the funding option you choose, understand that lenders use different metrics to determine your eligibility score.
However, most of them will look at:
• Credit score
• Years in business
• Past credit history
• Viability of your business idea
• Cash flow
So, before taking any further step, see that you fit within their lending criteria. Gather your Documents and Apply. The final step of applying a loan for your small business is gathering all the necessary documents and applying them. Depending on the lender, you will need to submit a combination of any of the following documents;
• Personal tax returns
• Business tax returns
• Business financial statements
• Business legal documents
• Business and personal bank statements
Once you've compiled all the necessary documents, it's time to submit and wait for the response. Again, depending on the loan and the lender, the waiting time may vary considerably.