Small business loans help a business person start their business and expand it, buy new equipment, and have a financial backup.
There are different places that small businesses can get loans from, but sometimes, it could get hard to get the loan. However, with these easy steps, any business can acquire a small business loan.
There are various categories of small business loans, depending on the amount the business needs, the needs of the business, and the time it takes for the borrower to repay.
Getting the right type of loan for a business ensures that the borrower gets enough money and gets the money in good time.
Borrowers who might find it hard to understand or find the different types of loans can use a platform like Lantern by SoF, which provides knowledge and expertise in detail about small business loans and prices to compare the loans and make the perfect decision.
Depending on the small business lender, borrowers can get different amounts, different requirements for qualifications, and different interest rates and repayment periods.
Some of the main lenders that small businesses can consider include;
- Direct online lenders- Various online small business loan lenders avail loans to small businesses using easy online processes. Small business owners, however, have to ensure that the lenders are legit to avoid getting scammed.
- Banks- Borrowers can choose either large commercial banks or local community banks. In large commercial banks, borrowers have a chance of getting more money. However, the process is slower because of the many requirements and many clients.
However, the loan process is faster in smaller local community banks, but the amount could be smaller than in larger banks.
- Peer-to-peer lending sites- These sites pose as middlemen between small borrowers and institutional plus individual lenders.
Credit scores are one of the main things lenders consider before giving money to small businesses because it shows how good they are at repaying their debts. The minimum credit score that many lenders accept is 700/900.
Lenders also consider the business’s current cash flow and current debts, how long the business has been operational, assets, investors, and partners in the business.
Lenders will want to know more about the business, and some of the documents the borrowers should present include;
- Updated financial statements from two or three years prior (balance sheet, cash flow statements, shareholder equity, and income and loss statement).
- Projected financial statements to help the lender understand where the borrower expects the business to be in terms of operation and cash flow.
- Proof of identity documents including bank statements for the past nine years, house and business address proof, and PAN card.
- House and commercial property documents.
- Business’ tax returns for the past two to three years.
- Business credit report.
- Liability insurance policies copy.
- Documentation for the collateral the business has for the loan, like car log books or real estate ownership papers.
The lenders will also need to know the business name, legal structure ( sole proprietorship, partnership, or corporation, and Federal Tax ID. By following all of these steps, small businesses increase their chances of getting a small business loan from whatever small business lender works best for their needs.