In a world where resources are increasingly scarce, securing that loan facility to finance your small business idea can prove to be a tricky task. However, it’s one tricky journey you sometimes must embark on. A small business loan could be the octane boost your company needs to advance to the next stage (as was the case with our fiber farming business); it could fund the development of a revolutionary product, promote expansion or sometimes provide the avenue to recruit new talents. Regardless of whichever is the case, the first step to securing the loan is to know just how to go about it. And by go about it, we mean all the subtle intricacies that determine if your loan application process would be easy, tricky or tedious. If you’re up for the smooth and stress-free route then here’s all you need to know to make that a reality.
- Determine why you need the loan
Ideally, this should be the first step you take when trying to get a loan. Aside from the fact that lenders make it a habit of asking this question, it’s vital that you know exactly what you intend to achieve with a loan before applying. This way you get to determine if the credit is really worth it – its bad business to apply for a loan that only marginally improves your competitive advantage – loans can be tedious to pay off. Also, a clear foresight of what the money is meant for cuts down the risk of you getting frugal with it once it arrives.
- Identify which loan type fits your business best
After determining why you need a loan the next step is to figure out which small business loan type better aligns with your needs and repayment capabilities. Several loan sources including term loans, working capital loans, equipment loans and credit cards are readily available. However, for a small fiber farming business looking to make giant strides like Alpaca farm, very few matches up to the flexibility and ease of access offered by a business line of credit –
A business line of credit works in the same manner as a conventional credit card. It provides you with a specified loan sum (usually with an upper limit of say, $250,000) from which you can borrow at will. Unlike the typical term or business loan which mandates you to pay interest on the whole loaned sum, with a business line of credit you get to pay interest only for money taken out of the overall credit facility. So assuming you take out a business line of credit for $150,000 but end up using just $10000, you pay interest on only the $10000 spent.
Aside from banks, several lenders provide business line of credit facilities, and among those the following stand out; BlueVine, FundBox, Kabbage, OnDeck, and StreetShares. All that’s required is for you to meet the requirements, which leads us to the next step, qualifying for a loan.
- Qualifying for a loan facility
Two essential factors that will determine if you are eligible for a loan are your credit history and credit score. Your credit history is obtainable free from either Transunion, Experian or Equifax. Your credit (FICO) score on the other hand can be retrieved from credit card issuers or online from finance web portals like Nerdwallet. In addition to these two, the loan issuing agency will review how long you’ve been in business and your revenue to determine if you’re fit to receive and subsequently service the loan. However, this is not to say you a bad credit automatically translates to disqualification. You could still receive a credit facility for your small business even if you have a bad credit score. Several business line of credit agencies like FundBox and Kabbage offer loan facilities that cater specifically to such needs.
- Prepare your loan application
Once you’ve identified you go-to loan serving agency the final step of the loan application journey is to turn in your documents. You’ll be needing your business tax returns, bank statements, financial statements as well as any relevant legal documentation for this. Once you’ve tabled your application and all the required documents the waiting game begins. And depending on the agency, the review process could take some days or extend up to a few weeks at the end of which you’ll be notified if your application was successful or not. If you followed the rubric specified above and applied to an agency for which you’re qualified to access a loan facility, then the chances are high that you’ll secure the loan. If it turns out unsuccessful, dust up your documents and try out the next agency and if need be a third. As they say, the third time’s a charm.