If you're ready to start or grow your business, one of the best ways to help is by securing a small business loan. Business financing can provide you with the funds you need to remodel your current location, build a new site, or update your equipment.
However, beginning the process to secure a business loan can be intimidating. Many people start the process underprepared and miss out on beneficial financing as a result.
If you're looking to get a business loan, there are certain steps you can follow before you apply that will help you secure fast approval. Take a look at our top five tips to get instant approval on a small business loan.
1. Tidy Up Your Personal Credit Score
One of the most significant requirements for almost all types of business loans is a strong credit history. Getting approved for a small business loan typically requires the borrower to have a solid business credit score.
However, if you are new to running a business, you may not have a business credit score that accurately reflects your spending habits, reliability, and potential revenue. In fact, you may not have a business credit score at all.
In these cases, you will need to lean on your personal credit score to get approved, even if the score on your credit report is low. Before you apply for a business loan, aim for good credit and tidy up your personal credit by:
- Disputing any errors
- Completing late payments
- Alerting creditors of your updated credit report
- Paying off high credit card debts if possible
- Establishing smart financial habits going forward
Even if your personal and business credit scores feel impossible to raise, it is possible to apply for a business loan with bad credit. Be prepared to explain your personal credit history on your loan application.
2. Create a Solid Business Plan
In order to qualify for a small business loan, you will need to demonstrate how you intend to use the borrowed money and that you have the ability to repay the loan. Business lenders typically require you to submit a detailed business plan during the application process.
Before seeking funding, create a robust plan that demonstrates why small business lenders should have confidence in your ability to repay your loan. Your business plan should include details, such as:
- Executive summary: Tell the lenders what your business is and why it will be successful.
- Company description: Include your mission statement, details about common problems and solutions, consumer base, and your unique competitive advantages.
- Market analysis: Depict trends and themes of your industry's target market.
- Organization and management: Describe the legal structure of your business and who is in charge of management.
- Service or product: Describe what product you sell or the service you offer and how it solves consumer needs.
- Marketing and sales: Detail your marketing strategy and how you plan to retain customers.
- Funding request: Clearly outline how you will use the funding and how you will pay off debt.
- Financial projections: Provide a detailed financial outlook for the next five years. Make sure your revenue projections match your funding requests.
If you can prove that your business will grow in revenue through a detailed and robust plan, it will help lenders feel confident that you qualify for a loan.
3. Choose a Type of Small Business Loan
We recommend examining your credit and creating a business plan first because those steps will help inform you about which small business loans you are eligible for. There are many types of small business loans, and you can secure them through traditional or online lenders.
Banks are the most common type of traditional lenders. While banks typically offer lower interest rates that are attractive to many loan seekers, the application and loan approval process is long and complex.
Traditional bank financing options include term loans, lines of credit, and mortgages. Bank loans require good credit, at least two years in business, and excellent financial projections to get approved.
The application process for banks is incredibly detailed and complicated, terms are strict, and it can often take several weeks to get approved. If you need fast cash, bank loans are not a good fit for your needs.
Unlike banks, online lenders or alternative lenders typically have less strict qualification terms, so small business owners with poor credit or less time in business have a chance to qualify for funding. Because of the more flexible terms, online lenders typically offer higher interest rates than banks.
Online lenders offer a wide variety of small business loans that range in cash amounts and repayment terms. Even though online lenders are more flexible than banks, a good credit score and detailed operation plan will help you get approved for more money with lower interest and better repayment terms.
While bank loans have lengthy application and approval processes, alternative lenders offer fast turnaround times. If you require fast funding, alternative online financing is the best option for you.
Best Small Business Loan Options
Depending on your business needs, there are many types of business loans available. Many small businesses seek financing through loans such as:
Small Business Administration (SBA) Loan
The Small Business Administration (SBA) is a government agency that supports American enterprises by helping match small businesses with SBA-approved lenders. Keep in mind that the SBA does not lend money itself.
SBA loans are sought after by many borrowers due to their ideal interest rates and repayment terms. However, getting approved for an SBA loan is difficult as the application process is similar to bank loans. SBA loans are fantastic for many small business owners who need help with debt financing, but they are not ideal if you need fast funding.
If you have poor credit but strong business experience or need quick cash, you may be an ideal candidate for short-term loans. A short-term business loan is a type of loan that is incredibly popular with small businesses because the loan application is simple and flexible.
It is typically easier to qualify for short-term loans than other types of financing because the short repayment term minimizes risk for online lenders. Typically, the repayment term is six to 18 months, and loan payments are made weekly, bi-weekly, or in some cases, daily.
If you're looking to get a business loan specifically to buy new or updated equipment, look no further than an equipment loan. Equipment financing is a type of loan that funds the purchase of equipment. Business equipment is an umbrella term that encompasses a variety of items, such as:
- Medical devices
- Agriculture machinery
- Construction equipment
- Company automobiles
Keep in mind, business equipment varies by company and the items listed above are just a start. An equipment loan is typically secure for business lenders because the equipment itself acts as collateral. After you pay off your loan, you officially own the equipment.
Business Line of Credit
If you're seeking business lending for on-demand needs, a business line of credit might be the best option for you. Business lines of credit operate similarly to a credit card that you have in your wallet.
Lenders grant a business line of credit to business owners as an open revolving credit facility. If you qualify for this small business loan, you can draw on credit funds on an as-needed basis.
The best part about business lines of credit is that you only pay interest on the funds you actually use. This type of small business loan is great for companies that want to increase their cash flow and have emergency funds on hand.
Merchant Cash Advance
Applying for a merchant cash advance is a popular option for small business loan seekers. This small business loan is technically an advance of your company's future sales.
If your business receives substantial credit card sales, this business loan is worth looking into. Merchant cash advances (MCAs) work when lenders trade a lump sum of funds in exchange for a fixed percentage of future daily credit card sales.
MCAs have flexible repayment periods with no term limits. This small business loan is an excellent option for businesses that need fast increased cash flow.
4. Make Sure You Meet Necessary Requirements
Once you've decided which small business loan to pursue, ensure you meet the requirements before filling out an application. Some business loans have stricter requirements than others, so make sure you have a firm understanding of your credit score, revenue, business projections, and other noteworthy details regarding your business. Consider the following questions before applying:
Can You Afford the Payments?
Take a close look at your business's financial status and cash flow. If you qualify for a loan, can you afford to make payments monthly, weekly, or bi-weekly? To comfortably repay your loan each month, your income should be 1.25 times your total expenses, including your required payments.
How Long Have You Been in Business?
Sometimes, a certain number of years in business is required to obtain a small business loan. Most online lenders require at least one year in business, while banks typically require at least two years.
Are You Comfortable Offering Collateral?
Offering collateral positively impacts your business loan because it reduces the risk for lenders. Collateral is an asset that has significant value, such as:
- Real estate
- Fine jewelry
- Savings accounts
When you offer collateral with a small business loan, the lender can seize what you offer if you fail to repay the loan. Collateral can strengthen your application if you have poor credit, but you must be prepared to lose the asset if you fail to repay your loan.
Some business loans require collateral, so be sure to note all requirements before you apply. If you're not comfortable putting up collateral, seek out a loan option that doesn't require it.
5. Gather Your Documents
If you want to achieve instant loan acceptance, our last tip is to gather all necessary documents before sending in your application. This step will save time on both ends and demonstrate your preparedness and work ethic. Gather the following documents:
Business Financial Statements
For a snapshot of your business's financial status over time, provide your business financial statements. These documents are written records that convey details, such as:
- Business activities
- Financial performance
- Yearly revenue
- Assets and liabilities
Personal and Business Tax Returns
Lenders use your tax returns to verify your yearly income. These documents help determine how much money lenders are willing to loan to you.
Personal and Business Bank Statements
Providing bank statements is another way for lenders to verify your income. Typically, lenders ask to see at least two months' worth of statements before issuing a loan, but specific applications have varying requirements.
Business Legal Documents
Providing legal documents helps lenders reduce fraud. Business legal documents can include:
- LLC Operating Agreement
- Articles of Incorporation
- Business licenses and permits
- Federal tax ID
- Shareholders' Agreement
Remember the thorough, detailed business plan we discussed earlier? Once you've completed your plan, include it with all other necessary documents to tie everything together.
Follow These Tips to Get a Business Loan Fast
If you need fast funding, preparation is key. If you improve your credit score, create a detailed business operation plan, research loan options, ensure you meet the requirements, and gather necessary documents before you apply, you are sure to speed through the application process.
It may seem tedious to complete all this work before applying for a small business loan, but we guarantee that these steps will minimize frustration and help you achieve instant funding. If you feel ready to apply for financing, reach out to AdvancePoint Capital to get a free quote today.