Applying for a small business loan can seem overwhelming. It’s hard to know where to begin, and the finish line can seem so far away. By following these nine simple steps, your dream of obtaining a small business loan is attainable.
- Plan, plan, plan!
The first step in any new business is to work out a thorough business plan that details your strategies and goals for the next few years. This should include your budgets and financial objectives, including what type (if any) loan you plan to obtain, and how you will spend that money to grow your business. You should learn exactly how much the things you need will cost (manufacturing equipment or a warehouse space, for example), so you can budget accordingly.
- Make it official
Arrange all the paperwork necessary to make your business something that stands on its own, separate of you personally. This can include a federal Employer Identification Number (EIN), a local business license or filing to become an LLC, corporation, or whatever structure makes sense. After this, get a business phone number and list your business in local business directories. While seemingly simple, these little steps can make a big impact when trying to establish business history and credibility, and this will help you get a small business loan down the road.
- Prioritize credit
Open a credit card or two with your business name. Be sure to use them, even if you don’t really need to, to establish some credit history. Also, ask vendors and suppliers for terms, like net 30. Be sure to pay all your bills on time.
- Shake a lot of hands
Start forming relationships with banks, lenders and other contacts in the business community. It is important to start building these connections early, before you actually need to use them. Like any other situation, people are more likely to want to work with individuals they know and trust.
- Know your credit score
Invest in a service that will keep an eye on your business credit score. This score will weigh heavily on your potential to secure a loan. A credit monitoring service will help you identify areas where your business needs some credit improvement. It will also allow you to spot and correct any mistakes. These can be common in business credit reports because the process is not as exact as personal credit tracking.
- Be choosy
Do your research on different types of lenders and decide which is the best fit for your business. For traditional loans, commercial banks are great. Community banks and credit unions may be a good fit if your business is poised to help economic development in certain geographic areas. Micro-lenders are great for businesses needing smaller loans (typically less than $10,000). Alternative online lenders can connect you with a number of competitive bids to review.
- Prepare your loan package
A loan package is your business loan application, and it typically contains your business plan, financial projections (like how much money you hope to make and how you plan to spend it) and your personal financial history (usually reviewed from past tax returns).
- Cross your fingers
Typically, it takes about two to four weeks for lenders to process applications and respond. You can check in with them weekly for a progress update. Be prepared to provide additional information and documents and answer questions they might have.
Hooray! All that hard work paid off and you received your small business loan! Watch out: Don’t let all the money go to your head; be sure to spend it the way you outlined in your business plan. Congratulations on taking a big step forward in your business!
This article was originally published on LendingTree.com on Aug. 27, 2015.
Content sponsored by LendingTree.