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Getting a Small business loan is a major hurdle for small businesses, mainly because of the strict credit standards imposed by banks.
However, https://acfa-cashflow.com/ noted that it is often necessary to obtain external financings like an internet payday loan to cover daily expenses.
While it is difficult to find, apply for and obtain approval for small business loans, the better you are prepared, the better. Here’s how to get a business loan in five steps:
- Identify why you need money. Ask yourself how this loan will help your business.
- Find the right loan. Choose a type of commercial loan according to your needs.
- Find the best lender for you. Compare the options according to the cost and conditions of each loan.
- See if you have what it takes to qualify. Gather information, including your credit score and your annual income.
- Prepare your documents and apply. Know what documents the lenders will need from you in advance.
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- Open more doors to finance your business.
- Set your goals and track your progress.
- Registration will not affect your score.
1. Ask yourself why I need this loan.
Lenders will ask you this question and your answer will probably belong to one of these four categories:
- To start your business
- To manage daily expenses.
- To develop your business.
- Have a cushion of security.
2. Decide what type of loan is best for you.
The reasons you need the loan will dictate the type of loan you receive.
If you start a business, it’s virtually impossible to get a loan in the first year of your business. Lenders need cash to finance the repayment of the loan. As a result, new businesses are immediately excluded from financing.
Instead, you’ll need to rely on business credit cards, loans from friends and family, crowdfunding, personal loans, or a micro-credit from a nonprofit lender. Here is more information about business start-up loans.
For businesses with more than a year of history and revenue, you have more financing options, including SBA loans, term loans, lines of credit and billings.
Go to our chart with easy definitions of different types of financing.
3. Determine the best type of small business lender.
You can get small business loans from many locations, including banks, long-term non-profit lenders, and online lenders. These lenders offer products such as term loans, lines of credit and accounts receivable financing.
According to Susan Diva, business advisor at Alabama’s Small Business Development Center, it’s best to approach small business and auto loan purchases.
Once you have determined the type of lender and financing vehicle that’s right for you, compare two or three similar options based on the annual percentage rate (total borrowing cost) and conditions. Among the loans to which you are entitled, choose the one with the lowest APR, as long as you are able to manage regular loan payments.
Use the NerdWallet Business Loan Calculator to calculate your monthly payment.
Use banks when:
- You can provide a guarantee.
- You have good credit.
- You do not need money fast.
Traditional banking options include term loans, lines of credit and commercial mortgages for the purchase of real estate or refinancing. Through the banks, the US Small Business Administration offers general loans to small businesses with its 7 (a) loan program, short-term micro-loans and disaster loans. Loans granted by the SBA vary between 5,000 and 5 million euros, with an average amount of 371,000 euros.
Smaller businesses find it harder to get approved because of factors such as declining sales volumes and cash reserves; Add to that bad personal credit or no collateral (eg real estate to secure a loan), and many small business owners arrive empty-handed. Obtaining funds takes longer than other options – usually two to six months – but banks are usually your worst option.
Use micro-lenders when:
- You can not get a traditional loan because your business is too small.
Lenders are non-profit organizations that generally lend short-term loans of less than 35,000 euros. The APR on these loans is generally higher than that of the bank loans. The application may require a detailed business plan and financial statements, as well as a description of the use of the loan, making it a lengthy process.
In addition, the size of the loans is, by definition, “micro”. But these loans may be suitable for small businesses or startups that can not qualify for a traditional bank loan because of their limited operating history, insufficient personal credit, or lack of credit. guarantee.
Popular lenders, the Opportunity Fund and the Business Center for New Americans.
Use online lenders when:
- You lack guarantee.
- You are running out of time in business.
- You need financing quickly.
Online lenders offer loans to small businesses and lines of credit ranging from € 500 to € 500,000. The average APR on these loans ranges from 7% to 108%, depending on the lender, the type and size of the loan, the repayment term, the credit history of the borrower and whether or not the loan is required. guarantee. These lenders can rarely compete with traditional banks in terms of RPPs.
But approval rates are higher and financing is faster than traditional banks – as fast as 24 hours. See NerdWallet’s reviews on online business lenders.
4. Find out if you qualify.
WHAT IS YOUR CREDIT SCORE?
Your place in the range of credits is one of the factors determining the loans to which you are entitled. You can get your credit report for free from each of the three major credit reporting bureaus – once a year. You can get your credit score for free from multiple credit card issuers as well as personal finance websites, including NerdWallet.
Banks, which, as previously stated, offer the cheapest small business loans, want borrowers with a credit rating of over 680, says Darden. If your credit score falls below this threshold, consider getting small business online loans for borrowers with bad credit or loans from a nonprofit microcredit.
SINCE WHEN ARE YOU IN THE MIDDLE?
In addition to your credit score, lenders will take into account the duration of your business activity. You must have been in business for at least a year to qualify for most online loans for small businesses and at least two years to qualify for most bank loans.
DO YOU ENOUGH MONEY?
Many online lenders require a minimum annual income, which can range from 50,000 to 150,000 euros. Know yours and find out the minimum required by a lender before submitting your application.
CAN YOU MAKE PAYMENTS?
Take a close look at your company’s financial statements – especially cash flows – and assess how much you can reasonably afford to claim a loan each month. Some online lenders require daily or bi-weekly repayments, so consider them in the equation if this is the case.
To repay your loan comfortably each month, your total income must be at least equal to 1.25 times the total amount of your expenses, including the new repayment amount, said Darden. For example, if your company’s income is 10,000 euros per month and you spend 7,000 euros on expenses, including rent, payroll, inventory, etc., you can easily afford to repay at most 1 000 euros per month. You can use the Nerdwallet Business Loan Calculator to determine the price of your loan.
More tips: How to qualify for a small business loan.
5. Now, gather your documents.
Once you have compared your options, it is time to apply for the loans that meet your financing needs and to which you are entitled.
You can apply for multiple loans to a small business in a short time (about two weeks) without affecting your credit score.
Depending on the lender, you will need to attach a combination of the following documents to your request:
- Declarations of personal and professional affairs
- Professional and personal bank statements
- Financial statements of companies
- Commercial Legal Documents (eg, Articles of Agreement, Commercial Lease, Franchise Agreement)