If you are a small business owner, it is likely you will reach a time when you need a small business loan to help you through a slow period or in a period of growth. Beginning your search can be overwhelming, with all of the options available out there.
We are going to look at five key resources that will help guide you through the process, allowing you to put forth a strong application and help you decide on the best finance type for you and your business.
One of the first things you will want to determine is the type of loan that is right for your business, and how much money you will need to borrow. Various loan types have different repayment structures and the interest rates vary dramatically. It’s crucial that you utilize a loan calculator that’s specific to the type of financing the you are exploring.
There are options online for free loan calculators that will allow you to determine the total cost of any type of loan, including origination fees, and interest. It is good practice to do this with any loan offer you can, as lenders will have different ways of quoting their pricing. A loan calculator will help you figure APR, allowing you to compare offers (Apples to Apples) and make sure you know exactly how much that loan will cost you. Click here for some free loan calculators.
Accountant And/Or Business Mentor
If you’re at a stage where your business is looking for financing, you should already have a business plan in place that is guiding your financial decisions. Even if the lender you’re seeking financing from doesn’t require a business plan as part of the application process, you want to be sure the underlying assumptions you’re making with respect to financial projections and your plans for the capital you’re borrowing are correct.
This is where a trustworthy accountant and/or business mentor comes in. Ask your accountant or mentor to review your business plan (or help you create one if you haven’t done so yet) and provide honest, comprehensive feedback to make sure you have the strongest possible framework to guide your business decisions.
Before establishing a relationship with you as a borrower, all lenders both traditional or alternative will want to see financial statements. These documents demonstrate your businesses proven track record of success. The documents that are most frequently requested include cash flow statements, balance sheets, and income statements. If you are a borrower seeking your first loan for a new business, it is highly likely that your potential lender will ask to review your personal financial statements and run an individual credit check. This will assist in proving to them that you have been a trustworthy borrower in your life prior to becoming an entrepreneur.
It is good practice to review these documents on a semi-regular basis to assess your own financial health before applying for a loan. Knowing your current financial standing will allow you to seek the type of loan that makes the most sense for your business.
Business Tax Returns
Majority of lenders will want to review your annual business tax returns. Business tax returns are personal and sensitive information but lenders have good reason for wanting to review these documents. The first thing lenders are going to review is your annual revenues. They want to verify that you are making enough to pay for the loan. They will review and take note of any losses. Losses are red flags for lenders that signify that you may not bring in enough income to qualify for the loan you want. You might still qualify for a loan but it is likely that your interest rate will be higher, and the total amount you are approved for is less than you need.
If you’ve already borrowed funds for your business, lenders will want to know about it. As they see it, the amount of outstanding debt you have may make it more difficult for you to take on additional financial commitments, but it can also demonstrate that you’re a responsible borrower with a solid repayment plan.
A business debt schedule allows you to map out your outstanding loan and credit amounts and outline your monthly payments with interest and payment dates. Even if lenders don’t ask for this document, you can use it internally to make sure you never miss a payment, to keep a finger on the pulse of your business’s financial health, and to gauge whether your business is in a position to take on additional debt.
Whether you’ve been running your own business for years or are looking to acquire business financing for the first time, planning and organization upfront will ensure the application process goes smoothly. Take full advantage of all the resources you have available, from company data to accountants, to free online calculators.
If you would like assistance in obtaining financing for your small business, contact us today for a free no-obligation discussion to see how we can be of assistance. Complete the form below or call us directly at (714) 872-2393.