A good business requires a good investment, which is hard to come by. Great entrepreneurs have often stated in their speeches how the hardest part for them was finding and locking in a good investor. Moreover, investors are often really hard to please and make use of. Alternatively, anyone looking for a good amount of money while having faith in their venture can apply for a business loan.
Application for a business loan and the process can very often be confusing. This has caused people to completely back out of the idea as they are often reluctant to take such demanding and complicated decisions. A prerequisite to applying for the loan is to completely come to terms with the option you are choosing and that the pros of choosing a business loan fall completely into your vision.
You must also know that the return will be enough to pay off your loans and that the tradeoff is essential to help your business grow. There are other alternatives, such as financing or selling a part of your company, which are not always available and can often be categorized as not the best options.
You need to know if you are eligible for a loan as banks or loaning entities often check your bank statements and profits to judge if your company can pay it back before approving the loans. They check for a good credit score, closing balances over the past years, and many other aspects. Good credit scores are also able to give you better rates and better terms.
Choosing the right bank or entity for your loan is of utmost importance. Ask around, read reviews, go through the terms and conditions of the general loaning policies that every bank provides. Nowadays, there are online entities that help you make the most out of a bad credit score and lend money on a less markup. They are flexible and, therefore, can set terms specifically for you. These entities, however, can provide limited amounts of funding, which makes it harder for you to opt.
Banks and corporations rarely ever need to have a relationship with the customer and often function on the basis of company data and bank statements. They approve and reject loans based on credit scores, amount requested, dealing history, etc. In very rare cases, customer relationship managers are involved.
Due to the shift towards online loan applications, less human interaction is required with every passing day. This makes it much harder for you to get a better chance based on face value and potential. Some banks still prefer meeting a customer in hopes of a long term relationship with a potentially growing company and give better terms even with an “okay” credit score and make the process much easier for you.
Know your standing in the financial department. If you are starting with a new business, opting for long term loans is not always the best option. You can opt for other alternatives for a smaller amount, and the rest can be a long term loan. Other options include multiple types of financing on current personal assets.
A loan application is the most confusing part of the process as a new business owner is entirely new to the market. They may not know the required documents or may mislabel or misinterpret certain terminologies.
What you need to gather are your personal and legal documents and the company’s paperwork, which include:
- Legal Identification papers
- Ownership documents
- Business permit
- Tax returns
- Bank statements
- Stock certificates
- Stock ownership documents
- Business shareholder information
- Miscellaneous documents (depending on your or your company’s case)
All these documents will be clearly labeled in the application and will be submitted with the application. A part of this process is to stay in touch with your loan officer. The officer may remain the same from the start or may change after your application is submitted. This varies from bank to bank. You may need to have a formal meeting with the loan officer who will be speaking on the bank’s behalf in your case. You will have to explain your vision and may have to sell your idea and share your vision for the company. It is then up to the loan officer to judge whether to put trust in you and put in a recommendation and forward your application for approval. Approval may take a while for smaller businesses anywhere from four weeks to several months, but if you applied for the right amount with the proper paperwork, you should be hearing from your loan officer within a month.
The Final Word
This process can be tiring, but the most effort is required in the correct thinking process, and once you choose what’s best for you and make your case, it will all go by like a breeze.