Almost all small businesses require outside financing to strengthen their cash flow and spur growth. One of the most sought-after forms of funding is a business loan. Here are the steps to take in preparation for applying for a small business loan.
Consider How You Will Use the Funds
The type of business loan you apply for is determined by your specific needs. For instance, if you are initiating a new business you will need a startup loan, and if you are purchasing an already-existing business you may require a business acquisition loan. Equipment loans can help you purchase machinery or vehicles, and loans guaranteed by the U.S. Small Business Administration can help with company growth. A line of credit or accounts receivable factoring can give you additional working capital.
Check Eligibility Requirements
Although requirements for loan eligibility may vary from lender to lender, there are some important factors that most lenders will consider. One is the personal credit score of the business owner. Another is how long the company has been in operation. A third consideration is the amount of collateral that is available to secure the loan.
Assess Your Ability to Repay the Loan
To obtain a business loan, you must prove that your company is profitable enough to be able to handle the repayment. To determine this, the lender will calculate your debt service coverage ratio, which means your total debt relative to your company’s income.
When you apply for a loan, you will need to submit a number of documents. These will include recent personal and business tax returns as well as income statements and balance sheets for the company. You will also likely need a comprehensive business plan.
Select a Lender That Meets Your Needs
Find a lender with experience in your company’s industry. Evaluate potential lenders by comparing requirements, fees, application processes, and the amount of time it will take them to reach decisions. Once you have decided on the lender that best fits your situation, go ahead and submit your application.
For more advice on obtaining a small business loan, contact Hedge Commercial Capital.