Small business loans are available from a variety of traditional and alternative lenders and can help you start a new business or grow an existing one. However, before business owners begin the process of applying for small business loans, they need to understand the steps for successfully securing funding. Although there are many additional details, here are five major steps that you should take when getting a small business loan.
Understand the Types of Small Business Loans
There are many types of small business loans available to business owners, depending on what you plan to use the loan for and additional specific terms of the loan. One common type of small business loan is a term loan, which specifies the amount and may be secured or unsecured. Additionally, some lenders will offer options in opening a small business line of credit, which allows small businesses to use funds as needed. There is usually a cap on the amount you can spend, but this type of loan is particularly useful when managing cash flow or unexpected expenses.
Research Lender Options
More lenders than ever before are willing to lend funds to small businesses or startups. While many of the lenders in Australia can be found with a simple online search, it is beneficial to understand a few types of lenders and how they provide funding. One ideal type of lender is a direct online lender for short-term loans, and business owners simply apply online and wait for the decision. Some lenders, such as Max Funding small business loans, allow business owners to apply online, get a decision within minutes, and receive funding within the same day. Another way to secure funding for your business is through a commercial bank loan, but this process is usually a bit more rigorous and may take longer than an instant direct online lender.
Critically Analyse Your Credit
Most commonly, lenders make a decision about whether to provide a loan based on the credit score of the business owner. Although many direct online lenders will allow business owners with bad credit to receive a loan, others are more critical of credit scores, so take some time to analyse your score and how you can improve it over the next few months. Additionally, consider what assets you have and if the lender will view those favourably.
Organise All Financial Details
Depending on the size of loan that you are requesting, all financial statements and records will be critically viewed by lenders. Make sure that all statements are complete and that each detail of cash-flow and loss records are correct. Some lenders may not require any type of statements, audited or otherwise, so if this may be a problem for your small business, consider using direct lenders.
Specify and Explain What the Purpose of the Loan
Ultimately, the lender may want to discuss the amount of funding that you have requested and ask where you plan to use the money. Determine ahead of time whether the funding will go towards company expansion, new equipment, employee salaries, or new facilities. As you begin the process of securing a new small business loan, work with a reputable lender who is appropriate for your small business, assets, and overall financial history.