To get a loan, small business owners must follow a certain process. When applying for financing, borrowers have to provide a lot of information about themselves and their businesses so that lenders can assess their risk and creditworthiness. Not taking the right steps can damage business owners’ credit and reduce their chances of getting financing. Therefore, if you want to get a loan, make sure you follow the steps below:
1.- RESEARCH
Before applying for a small business loan, it’s important to research and understand the different types of loans available. You should know the requirements for the types of loans that may be right for you, as well as the payment options and the types of documentation that will be required for approval.
2.- CHOOSE A LOAN
Once you’ve considered various loans that may be a good fit for your small business, decide which ones might work for you depending on your business needs and desired repayment terms, as well as which ones you may be eligible for. When deciding on the type of financing, be sure to consider loans with realistic rates and terms based on your credit score and income, and not the best possible terms advertised by lenders, for which you may not qualify.
3.- CHOOSE A LENDER
Once you know what kind of loan you want, you need to find someone to give it to you. If you already have a relationship with a bank or other lender, it’s usually a good idea to look there first. If you don’t already have a relationship with a lender, try to find one that specializes in the type of financing you want and offers payment terms that are right for you.
4.- EVALUATE YOURSELF
Once you have decided what type of loan you want and what lender you want to use, there is one last step before submitting your application, and that is to evaluate yourself as a borrower. Check your credit with Credit Karma or another tool and look at your own finances to make sure you have the credit score you need to qualify and can afford your payments.
When you review your finances, make sure your income and expenses can be documented. If you can’t document certain parts of your income, your lender may not be able to consider that income as part of your loan application. Once you evaluate your credit and finances, ask yourself if you would be approved for your loan if you were a lender. If the answer is no, take steps to improve your credit for your finances before going ahead with a loan.
5.- REQUEST A LOAN
Now that you’ve chosen a lender and assessed your chances of being approved for financing, you need to apply. This process varies from lender to lender, but it is usually quite simple and involves several pages of paperwork. You should be aware that your financing application will require the lender to request a credit check, which will affect your credit score. That’s why it’s important not to apply until you’re prepared to know what your lender will find when they review your application.
Also, when you apply for financing is when you can start incurring costs. Because lenders have to run credit checks or assess the value of the assets you’re borrowing against, they may start charging you fees. If you have to pause your application and start it again later, you may have to pay those fees twice.
6.- MONITORING
Even after applying for financing, your work may not be finished. Most of the time, you’ll need to follow up with your lender to provide additional documentation or explain specific items related to your income, expenses, or credit score.
If everything goes well, they will approve you and you will close your loan. If you want to be approved for another loan in the future, you’ll need to meet the terms of the loan and make payments in full and on time. You will need to pay off your loan on time or, if your loan is not fully repaid, start looking for a new balloon payment refinance loan at least four to six months before the balloon payment due date.
