Sometimes Business owners wonder to expand their business or want to buy essential equipment for its overall growth but they do not acquire enough funds. to resolve this problem, they can apply for business loans. We usually feel stressed after knowing the hectic & lengthy process of getting a loan and failed to gather courage when it comes to initiating the process of the loan application. Continue to read the below-mentioned 5 easy steps to apply for the Business Loan in 2023.
1. Decide your loan type
The first and the most important rule of the business loan is to find out the objective of your loan because there are various types of business loans available in the USA. Therefore, Decide your loan type according to your business need.
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For purchasing new equipment
When a Creditor requires machinery, furniture, or any other equipment for business acceleration, they can move to the equipment lenders for a loan.
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For establishing start-ups
A quite good sum is required for establishing a new business but a line of credit, term loan, and a traditional business loan is difficult to grab for inexperienced entrepreneurs in comparison to professional ones. In such a case there are two best options available for them ie; personal business loans and business credit cards.
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For expanding your existing business operation
Business Expansion is the case of the large sum so, the SBA loans offer loans upto $5.5 million to qualified entrepreneurs which is a very high amount
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For carrying out various day-to-day business activities smoothly
Generally, a small amount is needed for carrying out temporary day-to-day business work. Working capital loans is the preferred short-term business loan. Other than this, the Us small business administration (SBA) and not-for-profit organizations also offer microloans. This type of loan is credited for paying rent, payroll, and for satisfying other temporary expenses.
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One can also take a business loan as per the business needs
Sometimes, the creditors don’t know the exact amount they want to borrow so, a business line of credit is a savior for them which they can issue as per their needs.
2. Check your qualification for a business loan
While choosing a businessperson for lending loans, borrowing considers the following points to examine their eligibility.
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Credit score (both personal & business
You are qualified to take loans from Banks if your credit score is equivalent to or more than 690. Don’t panic if it falls below that borderline because non-bank lenders are there to help you out.
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Collateral
Some lenders want collateral as a security for a loan which generally includes business equipment or inventory that the lenders will seize in case of non-payment of a loan.
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Personal Guarantee
In personal Guarantee, borrowers take a loan by giving a guarantee of their assets which includes savings, car, home or plots, etc.
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Annual revenue
Your annual revenue should fall between $50,000 to $250,000 to qualify for a line of credit and business loan. If it falls below the threshold, go for SBI microloans and business credit cards.
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Business year’s
Banks prefer to give loans to entrepreneurs who are in the business for at least not less than 2 years. Non-bank lenders give loans to those also who spent at least 6 months in the business world.
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Business industry & size
Some lenders consider the size of your business to calculate the risk factor. Some lenders want to take less risk and finance small sums whereas others want to take high risk.
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Future Business plan
Sometimes lenders want to know your business plan and insight into your financial statement before financing.
3. Compare lenders thoroughly
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Banks
The most important advantage of borrowing small business loans from banks is the low rate of interest. Banks take almost months to issue a loan due to its stringent requirements. It’s almost issue all those types of loans that are given by online lenders.
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Microlenders
Microlenders offers loans to applicants of amounts up to $50,000 after reviewing their financial statements and business plan. The requirements for a loan are very less stringent in comparison to banks and best for those whose credit scores fall below the threshold of traditional banks.
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Online lenders
The rate of interest is lower in comparison to banks and the requirements are less stringent than banks. It’s best for those small business owners who are in a hurry because of its fast issuance process. The only disadvantage of online lenders is the high rate of interest.
4. Accumulate all required documents for a business loan
There are various essential documents without which you can’t apply loan application. These documents may vary from lender to lender so It’s better to contact your lenders before filling out the small business loan application.
- Accurate Business information such as business name, tax ID, article of incorporation, business license, address, plans, etc.
- Personal and business financial statements such as annual revenue, personal and professional bank account statements, profit and loss statements Tax returns, etc.
- Information about the personal assets in case of the personal guarantee such as no of plots, home, and vehicles, etc.
- Where lenders require collaboration, information related to equipment, real estate, inventory, etc. Is required.
5. Apply for the business loan
This is the final step of your business loan where you fill out the loan application either online or in person and submit it after getting it reviewed by the small business development center of your area for its smooth approval. After approval, the lenders will send you an agreement to sign.
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Apply in traditional banks
Apply either in person at the branch or over the phone in Traditional bank accounts.
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Apply to lenders
Online lenders insert links on their websites for filling out the loan application.
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