2019-04-01 23:26:15

• Equipment financing

This type of loan specifically covers purchasing equipment. The lender covers the upfront cost of the equipment, and you pay back the loan with fixed monthly payments plus interest at a rate of 8 to 30 percent. It’s easy to qualify for an equipment financing loan because the equipment serves as collateral.

• Merchant cash advances (MCAs)

With the loosest eligibility standards, a merchant cash advance is also easy to obtain, but this is by far the most expensive type of lending. A financing company will advance you lump sum money that you pay back with a percentage of your daily credit card sales. While this method puts cash in your hand quickly, it ends up being expensive in the long run. It’s best to go this route only if you’re unable to qualify for any of the other lending options.

4. Verify that you’ll qualify

Before you go through the process of formally applying for a loan, do some research to make an educated guess as to whether you will qualify. For any type of loan, these are the factors that go into approval:

• Your credit score

It’s advisable to get a copy of your free credit report every year, but at the very least, you should find out your credit score before applying for a loan. You wouldn’t want to waste your time applying for a bank loan or SBA loan if your credit score isn’t excellent. But you still have options with not-so-stellar credit, such as short-term loans from microlenders. Know where you stand before you begin the process.

• How long your small business has been running

Unfortunately for first-time entrepreneurs, your small business usually needs to be up and running for at least a year before many financing companies will even consider lending you funds. And banks will usually require two years in business.

• Your annual revenue

Lenders often require a minimum annual revenue, usually from $50,000 to $150,000. Do the math to confirm whether your annual revenue falls within this range.

• Whether you can afford the repayment plan

Be realistic when you look at your company’s finances. Come up with a budget based on revenue and expenses to figure out exactly how much per month you’ll be able to repay on a potential loan. Use a business loan calculator to plug in the numbers and see what you can afford.

5. Organize all your documentation

Now that you’ve reviewed your options and have a sense of what type of loan is right for you, it’s time to gather your paperwork to complete your loan applications. Regardless of the lender, the bare minimum you’ll need on hand includes the following business and personal documents: tax returns; bank statements; financial statements; and any legal documents, such as articles of incorporation or a commercial lease.

Fundera provides a more in-depth 20-point list of information and documentation needed to apply for a small business loan, though your bank or lender will have their own requirements. Here’s a helpful checklist of what to have on hand before you begin the application process:

  1. Loan Amount

  2. Loan Purpose

  3. Personal Credit Score

  4. Business Credit Score

  5. Time in Business

  6. Business Plan

  7. Industry

  8. Entity Type

  9. Business Licenses and Permits

  10. Employer Identification Number (EIN)

  11. Proof of Collateral

  12. Annual Business Revenue and Profit

  13. Bank Statements

  14. Balance Sheet

  15. Personal and Business Tax Returns

  16. Copy of Your Commercial Lease

  17. Disclosure of Other Debt

  18. Accounts Receivable Aging and Accounts Payable Aging

  19. Ownership and Affiliations

  20. Legal Contracts and Agreements

6. Apply for, and secure, your loan

You’ve done all your homework, and now it’s time to begin the formal application process, either online or on paper. You can apply for several small business loans within a time frame of about two weeks, so it’s a smart call to compile all your documentation and submit your applications all at once. Don’t apply for more than three loans, as each lender will pull your credit report, which can affect your credit score.

After you’ve applied, the lender will let you know if you’ve been approved, and then your loan enters the underwriting process, which is when all of your information is verified. Provided all documentation is copacetic, you will receive the formal loan agreement to sign. But before you freely provide your John Hancock, carefully review the document: Make sure you understand the terms of the loan, interest rate, repayment schedule, and any fees you may incur. Once you feel comfortable with this loan agreement, sign on the dotted line and get ready to grow your business.

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