Whether you are starting a new business, trying to keep one afloat, or looking for the means to expand and grow, applying for a small business loan can provide the temporary financial assistance necessary. Before applying for such a loan, there are preparations you must take to ensure you have a higher chance of having your loan application approved.
Determine Your Eligibility
Depending on the loan you pursue, you will need to ensure that you and your business are actually eligible. One of the most popular small business loans in the United States comes from the Small Business Administration (SBA) which requires several things of applicants. For example, in order to qualify for an SBA loan, business owners must have a good to excellent credit score while their business must meet the SBA’s definition of a small business, operate within an approved industry, and have existed for at least 2 years prior to the completion of the loan application. Ensuring that you meet all eligibility requirements before starting the application process will save time and prevent wasted effort.
Calculate How Much Funding You Need and Why
One of the first steps business owners should take before applying for a small business loan is calculating exactly how much money they plan to request. Some businesses may find it beneficial to establish a general financial plan before undergoing this step. In addition to the amount of money you want to borrow, you should also be able to clearly articulate why you are applying for a loan. Demonstrating your understanding of business finance and your business’ needs can help convince lenders to fulfill your request.
Make Appropriate Preparations
When applying for a small business loan, most lenders will require documentation from you to demonstrate your ability to repay the loan. Be prepared to provide access to your credit score, your business’ cash flow, and your debt-to income ratio, These will be essential in determining not only your eligibility but also your interest rate. Business owners should also be prepared to provide evidence of a business plan for the loan, tax returns, bank statements, and more. All of these serve to provide evidence to lenders that you are fiscally responsible and are serious about receiving and repaying a small business loan.
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