It’s an undertaking virtually every entrepreneur must address at some point in their journey: how to apply for a small business loan. With so much riding on the outcome, and so many options out there, the task can seem daunting. The good news is, breaking things down into a few easy-to-follow steps can make the entire process more manageable. Read on for a high-level explanation of how to apply for a small business loan.
Find a Partner Who Can Help You Navigate the Loan Process
You’d be surprised at just how helpful it can be to have a teammate in your corner — especially one who understands the small business loan process. Because financial professionals deal with such issues on a daily basis, they have a firm grasp of the commercial loans out there, the steps required to gain approval and even legislative changes or government programs that can help you along the way. We recommend contacting your local bank to help you pinpoint the right small business loan for your needs, and to ensure smoother sailing along the way.
Central Bank Tip: Local banks such as ours provide about 60% of small business loans nationwide. That’s largely due to the fact that we have more flexibility than bigger banks and can base loan opinions on factors beyond what simple data sheets say.
Understand Your Loan/Lender’s Requirements — and How You Stack Up
Regardless of which small business loan you apply for, there are prerequisites you’ll have to meet. Speak with your lender to determine exactly what they’re looking for during the decision process. Is there a minimum credit score required? How do they factor in existing debt? Are there certain issues that serve as dealbreakers, even if you check all the other boxes? (Defaults on past loans, for instance?) Write them all down, and then assess your current standings. Once you know which (if any) areas you need to work on, you can take steps to ensure you’re in the best possible position before submitting you small business loan application. Such steps often include paying off a certain amount of debt or taking other measures to improve one’s credit score.
Pull Together Data That Tells Your Financial Story
A small business loan is an in-depth transaction that can carry risks for your lender. Before they determine whether your endeavor is a safe decision on their part, they need to understand who you are from a financial standpoint. And that means pulling together paperwork. Those requirements will vary based on factors such as the type of loan you’re applying for and your current financial standing, but in general you should be prepared to hand over the following information:
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Business Filings (Licenses and Permits, Articles of Incorporation, Employer Identification Number, etc.)
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Tax Return Information (Business and Personal)
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Financial Statements (Business and Personal)
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Business Financials (Income Statements, Future Projections, Balance Sheets, Loan Histories, etc.)
Communicate Your Business Plan
While the above financial information will convey how your business has fared in the past, it doesn’t say much about your future endeavors. At this stage of the process, it’s time to lay your full plan out there. Not only does it help your lender ensure they’re making a solid choice in backing you, but it can help you, the business owner, gain an all-encompassing view of things. Although every lender has a different way of going about their loan decisions, they’ll usually want to see the following:
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Basic Business Info (Products/Services Offered, Year Started, Current Financial Standings)
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Industry Overview (Who Your Customer is, Coming Trends, Current/Projected Demand, Competition)
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SWOT Analysis (An Overarching Look at Your Business’s Strengths, Weaknesses, Opportunities and Threats)
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Past and Planned Sales, Marketing and Financial Strategies (With Information Detailing the Success of Such Efforts)
Wrap Things Up and Submit Your Application
Because every small business loan is different, there are probably a few loose ends not mentioned here. You may need to give additional financial information, for instance, or provide collateral to your lender. Collateral isn’t required in every instance, such as with certain SBA 7(a) loans. At this stage, it’s important to take a step back, breathe and give your entire application a thorough read before submitting it to your lender. The more complete your application is (and the better it follows their requested guidelines) the better your chances of approval.
There’s no quick and easy answer as it relates to how to apply for a small business loan. But by taking a strategic approach to the process — and teaming with a financial partner you can trust — the process becomes much simpler. If you have questions on any of the above, or if you’re ready to get started on a small business loan to finance your company’s future, feel free to contact Central Bank. Our business banking pros handle loans like yours every day, and they’re always happy to help.