If you’re a first-time borrower looking to secure financing for your business, navigating the loan application process can be intimidating. However, with a little preparation and guidance, you can avoid common mistakes and increase your chances of securing a small business loan. This isn’t a comprehensive list of what to do in every application as every business will have different loan terms. These factors can drastically change your ability to secure a business loan. Consult trusted professionals and colleagues before you take out a loan for any reason.
Here are 10 tips to help you understand the business loan application process
Understand your financing needs
Before you apply for a small business loan, take time to evaluate your financing needs. Determine how much money you need, what you will use the funds for, and what type of loan best suits your needs. Your lender will want to know precisely how the funds will be used.
Check your credit score
Your credit score is an important factor in your ability to secure financing with any lender. Some lenders — like AltCap — have more flexible credit score requirements when compared to banks. Check your credit score before applying for a business loan and take steps to improve it if necessary.
A common roadblock for new borrowers is having little or no credit history
If you find yourself in this position, it’s a good idea to start with a lender who can help you start building credit. This is often in the form of a credit builder loan, which differs from a typical loan in that rather than getting the money upfront, your lender will deposit the amount of the loan into a savings or CD account you cannot use until your loan is repaid. A good credit history will impact short-term business loans and the level of interest rate paid by your business.
If you’re able to get an unsecured credit card, it’s important to use it at least once a month for items you would normally buy and make sure to pay your balance off monthly. If you can’t get an unsecured credit card, look into a secured card through your bank. It will take at least six months of timely, regular payments to establish a credit score from a previously underscored history.
Prepare your financial statements
Lenders will want to see your financial statements, including your income statement, balance sheet, and cash flow statement. Make sure you have these documents prepared and up-to-date.
Gather necessary documents
In addition to financial statements, lenders may require other documents such as tax returns, bank statements, and legal documents such as patents or trademarks. Make sure you have all the necessary documents before you apply. Before applying, you can always ask a lender to provide you with a list of required documents.
Research lenders
Do your research to find lenders that offer loans that fit your needs. Look for lenders with experience working with businesses like yours that offer competitive interest rates and terms. Consider the variety of loan types they offer, including bridging loans, which can provide quick, short-term funding for immediate needs. Ensure that a lender’s terms and rates would work for you and your business’s future.
Prepare a loan application package
Your loan application package should include your business plan, financial statements, and other supporting documents. Additionally, ensure your package details any needs for corporate loans that may support larger, strategic business initiatives. It is important to make sure that they are well organized and demonstrate an ability to repay.
Be prepared for questions
Lenders may have questions about your business, its operations if it has any legal issues, and its financial statements. Be prepared to answer these questions and provide additional information if necessary to ensure that you get good business loan terms.
Follow up
After you submit your loan application, follow up with the lender to ensure they have received it and to check on the status of your application.
Be patient: The loan application process can take time. On average, the business loan process takes between 60 and 90 days. Keep going even if your application is not approved right away.
Seek guidance
If you need clarification on any part of the loan application process, seek guidance from a trusted advisor such as a financial planner or accountant. We are also here to help you navigate the small business loan process. Reach out if you have questions about a DCF Loans and learn more about our simple intuitive process.
For example, you can benefit from bridging, development, and margin loans through an easy and fast process that enables you to have the funds needed to make your next big investment. DCF Loans is a solution, not another lender due to their understanding of business finance and its commitment to core loan terms that favor businesses.
Any business must take steps to increase their chance of obtaining a loan as banks trust facts and companies with solid plans. Following these tips, you can navigate the loan application process with confidence and increase your chances of securing financing for your business. Remember, preparation and diligence are key to a successful loan application.
