Small businesses often face difficulty when it comes to getting capital from traditional lenders. If you are looking for financing to start or grow your small business, you have many options. There are loans for equipment, inventory, and even marketing. If you have a strong credit score, have been in business for over one year, and show that you are profitable with sufficient cash reserves, this might be the avenue for you.
The Seven Crucial Steps to Get a Loan for Your Business
Justify Your Need for the Loan. A lender will give your business a substantial amount of money, and they will want to know where and how it will be spent. Therefore, your income and ability to repay the loan will be impacted by how you invest the loan.
Know How Much Money You Need. Many small businesses look for loans for various reasons, such as managing expenses, expanding, or buying equipment, building buffers against shortfalls, or starting up. Make sure you know the exact amount of money you will need to borrow—be careful not to overestimate it and end up with too much to repay or not enough to pay for your expenses.
Understand How Banks Evaluate You. The banking industry and lenders use different formulas to determine if loans are likely to be repaid. There are typically five factors a small business must consider, but this list is not exhaustive. Among the key factors to consider are credit score history, cash flow, collateral, time in business, and industry.
Identify the Type of Loan You Need. Many small business lenders will only lend money to enterprises with some history; most require you to have a certain number of months or years under your belt. If you have no collateral or revenue, you might consider getting a personal loan or a business credit card, but keep in mind you’ll pay a much higher interest rate. Also, personal loans won’t factor into your credit score.
Choose a Lender. Pick a lender, or alternative lender, to approach after determining what type of loan you require. Unfortunately, even traditional lenders are not all the same when it comes to business financing. However, small businesses have access to several of the best lenders, including lenders that offer bad credit options. Most of these lenders fall into the following categories: direct lenders, brokers, lending markets, peer-to-peer lenders.
Put Your Documentation in Order. No matter what type of lender or loan you choose, you will need to present your complete financial picture, which goes beyond just your credit score — but it is still a substantial factor. In addition, documentation requirements differ between lenders. Typically, most lenders will require a business plan, bank statements covering the last 12 months, tax returns covering the previous two years, and information about any current and past loans. Besides business licenses and legal documents, lenders require information regarding collateral and how loan proceeds will be used.
Fill Out an Official Loan Application. You should submit a formal loan application after researching and preparing your business for due diligence. Depending on the loan and the lender, the loan process can take months. The process can be sped up by using online marketplaces, but getting the money isn’t quick or straightforward.
POM (Peace of Mind) Capital & Funding Services is a New York-based investment firm providing small businesses with capital as loans. We have helped countless small businesses grow by supporting them to start-up and expand.
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POM Capital & Funding Services is a leading provider of alternative funding solutions for businesses of all types and sizes, offering commercial finance solutions and products to businesses in the Centerport, New York area and throughout the state of New York.