All business owners need to know how to safely apply for a small business loan. Congratulations on taking the time to obtain that information BEFORE applying for a snall business loan. It will pay off!
First of all, you need to be aware that not all lenders are ethical. Secondly, you must be alert for any signs indicating that a lender is predatory in nature. We will reveal ome of the warning signs in this article.
How To Safely Apply For A Snall Business Loan
Applicants for a loan should be aware of these unsafe practices.
- Abusive or unfair lending terms imposed via either coercion or deception
- Significantly higher interest rates as compared to their competitors’
- Failure to clearly disclose the entire payment schedule and the annual percentage rate that will be charged
- Asking you to lie on the application paperwork or to leave your signature box unsigned
- Places any kind of pressure on you to accept a loan from them
It is a good idea to check out offers from competing lenders. Furthermore, you may wish to meet with an accountant, attorney or a financial planner prior to signing off on any loan. After all, an ounce of prevention is worth a pound of cure, right?
The Tips On How To Safely Apply For A Small Business Loan Work For Virtually All Types of Loans
Most business loans are used to supply working capital or to purchase fixed assets. Working capital usually deals with such things as refinanced business debt, seasonal financing, revolving credit or export loans. Fixed assets include machinery, equipment, furniture, real estate, remodeling, orconstruction.
If given the choice, nearly all small business loan applicants prefer to obtain a Small Business Administration (SBA) loan for very obvious reasons.
- Loans guaranteed by the SBA nearly always have fees and rates comparable to loans without a guarantee.
- Many of the SBA guaranteed loans provid ongoing support for those starting or running their business.
- Down payments are usually lower than other loans.
- Overhead requirements are normally more flexible than required by other lenders.Some of the SBA guaranteed loans will not require collateral.
All Small Business Loan Applications Will Have Basic Eligibility Requirements, Some Specific to Them
All loan programs and individual lenders will have their owneligibility requirements. Some of which will be unique to them. They should give you a full and detailed list of all eligibility requirements. Additionally, ask them to explain any of the requirements that are not perfectly clear to you.
In general, your eligibility will be based on a few basic thngs.
- What is the nature of your business. In other words, how do you make money with your business?
- Where is the business located?
- What is the specifc type of ownershipdesignated for the business?
- Do you have the ability to repay any funds they might disperse via a loan to you?
- Is your stated business purpose a sound one?
- Does the business meet their specific size standards?
- Even those with bad credit may qualify for some loans.
Are You Ready to Apply For A Small Business Loan?
Remember that the Small Business Administration does not offer loans directily. Instead, they quarantee the loans. Have you made the decision to apply for a SBA guaranteed loan? Using the SBA guidelines to direct you, contact your chosen lender to determine which specific documents they require.
Below is a list to help you prepare the documents needed to complete an applica.ion. Once you complete your application , submit it to your chosen lender. They will submit it to the SBA on your behalf.
The Official Starting Place to Apply for A Small Business Loan
To officially begin the loan application process, you will need to obtain to complete the Small Business AdministrationApplication form. This form seeks to obtain specific information needed to determine the elegibility of the applicant. The application form clarifies the structure of the loan. Further, it also ensures compliance of all the requirements listed by the SBA Loan program involved. These include, but are not necessarily limited to, the following details.
- Identifying factors of both the lender and the applicant
- Loan guarantee request
- The source, and planned use, of funds being requested
- Loan Structure, including the term and pricing of theloan
- Details of progam requirements documented
To view a sample of an application form, go here: Borrower Information Form – SBA Form 1919
You will need to complete the following forms in order for the SBA to assess your ability to qualify for one of their loans.
https://www.sba.gov/loans-grants/see-what-sba-offers/content/personal-financial-statement and :https://www.sba.gov/document/sba-form-413-personal-financial-statement-7a504-loans-surety-bonds
You Need These Documents As Well
The lenders will want to know who owns the business and all of its affiliates and subsidiaries. Provide a list of an controlling interest in any other entity that you may have. The interest may be affiliated by a franchise, stock ownership, proposed business merger or any other such entity. Finally, you must submit documents asociated with the following items as well.
- Business License or Certificate requiered for you to do business. If your business is classified as a corporation, you need to stamp your corporate seal on the official Small Business Administration loan application.
- You must provide information supporting your ability to repay any funds you may receive from a lender. Be prepared to provide the lender with a copy of your P&L Statement as well as any Projected Financial Statements available. https://www.sba.gov/loans-grants/see-what-sba-offers/content/personal-financial-statement.
- Your Profit and Loss Statement must be current. (less than 180 days within date of application). You should also include any supplementary documents for the prior three fiscal years.
- Your Projected FInancial Statements must include a detailed and specific projection for the following year’s finances and income. This must accompanied by a written explanation as to how you anticipate achieving this projection.
- Include both business and personal federal income tax returns for all business principals for the past three years.FIrst of all, they must be signed by all principals. Secondly, you muat include resumes for each of the principals.
- The Lender will require details of your loan application history. Include data on any and all loans for which you have previously applied.
- You need to present a brief overview of your business and all the challenges it has faced. They want to know why a loan is needed. Tell them how it will be used to build your business.
Other Documents Needed Based OnThese Specfics
Whether you are already in business or are just starting up a new business, you will need a copy of your business lease. Or, alternatively, a document from your landlord detailing the terms of your proposed lease.
However, if you are seeking a business loan to purchase an existing business, you will need the following items.
- Proposed Bill of Sale including All Terms of Sale
- Asking price with detailed list of inventory, machinery and equipment, furniture and fixtures
- Prior two years federal income tax returns of the business
- Current balance sheet
- P&L statement of business to be purchased
Before You Apply For A Business Loan: Improve Your Credit Score First!
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