Many businesses, starting and established, often rely on loans from banks, credit associations and other lending institutions to finance their operations. However, unlike established companies with numerous assets that they can use as loan security or collateral, small businesses with few or zero assets face an uphill task convincing lenders to give them loans. The process can be long and intimidating, as the banks go through the financial documents submitted by the applicants. As you know too well, time is an important element for business success. Delays, especially when it is about money, can greatly affect your business.
If you are a business owner who wants to know how you can access business loans quickly, you have definitely come to the right place. This article will equip you with the tips you need to get your business loan request accepted in record time!
See Also: How to Crowdfund Your Start-Up
1. Get Your Financial Documents in Order
It is standard practice for commercial banks and other lenders to thoroughly scrutinize the financial records of a loan applicant. Besides determining whether you have the ability to repay the amount you are requesting, they want to know whether you’re your financial history has some questions marks. Has your business, for instance, made late loan repayments before? Or, has it ever defaulted on a loan?
The documents that you need to prepare include:
- Income tax returns
- Sales records
- Business projection statements
- Cash flow statements
- Personal financial statements
Before submitting these documents, it is important to ensure they are accurate and up-to-date. You don’t want a scenario where the lender calls you to verify one or two things. This will lengthen the time required to process the loan, as well as raise credibility issues on your part. If your business has been around for a while and you don’t yet have a credit report, it is advisable to do so. Specialist companies such as dun&bradstreet offer free credit reports for businesses.
What if your business is a startup? Well, you will certainly need to have a personal guarantee for the loan. Consequently, your consumer credit report will be needed.
If the business is a partnership, you will also need to include a partnership agreement. If it’s a franchise, the franchise agreement will be necessary.
2. A Solid Loan Proposal Plan is Key
Banks tend to behave like venture capitalists. They have a greater incentive to loan and support applicants that have viable or profitable business ideas. Treat the loan proposal or business plan as something you would, given the opportunity, pitch to Shark Tank investor Daymond John!
When writing the plan, here are some of the things you should not fail to address:
- Why you need the amount you are requesting – If you need $50,000, you must be able to show why 50k, and not 100k, is the right amount for your business.
- How you will put the money to use – Lenders don’t like to see loan money used for recurrent expenditures – like paying salaries. Something like buying equipment or more stock is better.
- How you will repay the loan – In most cases, loans are repayable on a monthly basis. As such, you must state how you plan to service the loan. In short, your cash flow projections should show that the business is likely to generate an amount that exceeds your monthly installments for a period of not less than a year.
- What if the business is unable to repay the loan?- A business-savvy person is bold enough to acknowledge that investments can go wrong. In the unfortunate event that the business fails, include assets that you will be willing to sell to generate revenue to settle the loan.
3. Identify a Reasonable Lender
Commercial lenders are not created equal. Some are established lenders that only work with corporate outfits, and some are designed to help small businesses. Others go beyond small business and specialize in women and youth.
It is, therefore, very advisable to do your research and identify lenders that have loan products designed for businesses such as yours. If you run an agribusiness, for instance, you stand a higher chance of getting loaned by a lender that focuses on offering farm or agribusiness loans.
You could search for other business owners who have secured loans with various institutions and ask them about their experience. This will enable you to know what they look for in applications beyond the traditional financial statements, as well as their turnaround times.
According to an interview published by Bankrate.com, George Cloutier, a small business consultant and CEO of American Management Services, says that traditional banks are still the best providers of loans, particularly because of their low interest rates and industry reputation. But this may not always be the case. Today, there are institutions that are financed by federal and state governments to give loans to small and emerging businesses. The U.S. Small Business Administration is a perfect example. In fact, SBA loans are designed for businesses that find it difficult to secure financing from traditional banks. What’s more, they charge the lowest interest rates and can offer up to $5 million! As per information published on its website, you can get an SBA loan at the tiny interest rate of 2.25 percent.
Lastly, you can seek the services of a loan consultant. This is a professional who possesses a wealth of information on the financial services industry, and he or she can match your business with suitable lenders. The counselor can also recommend a loan amount that is not likely to come under excessive scrutiny from the lender’s loan officer, ensuring your application doesn’t face any unnecessary hurdles that might delay its approval.
Once you have identified a lender that suits your needs, you can go ahead and make the application. If the lender requires applicants to open accounts with them before seeking loans, be sure to do so before applying.
4. Maintain a Business Relationship
The process of getting a loan should not end immediately after the lender disburses the loan to your account. It is important to develop a positive business relationship because you may need to access its credit facilities in the future. One good way to get into the lender’s good books is to make timely repayments. If it’s a bank, maintaining an active account or doing business with it can also go a long way towards making you a valuable customer.
So, how quickly can you expect to get your loan? Is a day too much to ask? As for SBA-sponsored loans, you can expect to get a response within 36 hours of making the application. If you happen to apply when business is slow, then you may get the money within a day. For the quickest community banks, credit unions and commercial banks, 3 days is a good bet.
Ultimately, how soon you get your loan depends on how closely you follow this guide. A flawless application will move you a step closer to getting funded while a hurriedly-compiled application with mistakes here and there will cost you more time.
Have you ever borrowed a loan? How lengthy was the processes? Share your success (or otherwise) story with us in the comments section below…