How to Get the Best Business Loan
There's a lot of loan options to pick from when securing financing for your business.
Not to worry -- that's what makes us different. We learn about what your needs are and guide you in choosing the best small business loan that's right for you.
Let's go over the process to get the best loan for you.
Figuring Out What You Need
The goal is to figure out why you need funding, how you will use it, and the loan amount you should be seeking.
Step 1: Why do you need a business loan?
It's always a good idea to understand how you will use the financing from a business standpoint. Each type of loan serves specific business purposes.
Here are some reasons businesses choose get a small business loan:
- Coronavirus and pandemic assistance
- Growth opportunities
- Gap in accounts receivables vs. payables
- Short-term operational costs
- Emergency repairs
- Equipment purchases
- Material purchases
- Operating expenses
- Hiring new employees, training & education
- Payroll & taxes
- Opening a new location
- Advertising & marketing
- Refinance existing debt
- Store improvements / renovations
- Overcoming unanticipated business expenses
Step 2: Identify how much you need to borrow
Once you've figured out why you need to borrow money, the next step is identifying the loan amount.
We'd all love to get $50 trillion dollars. But the best way to go about it is understanding how much you need to achieve your business goals.
Here's one way to figure that out:
Take your list of reasons from step 1 above. Jot down how much each item would cost. Try to be as realistic with the expenses as possible.
Add them up, and see your loan options.
What’s Needed to Qualify for a Small Business Loan?
Qualifications and requirements for small business loans vary according to the type of loan. Also, different lenders have different criteria. For instance, SBA loans and traditional loans from banks tend to have stricter requirements. On the other hand, online lenders can be more flexible and even offer business loans to companies with bad credit. Meanwhile, crowdfunding is typically open to all businesses.
However, if you’re applying for any type of loan, there are three main requirements that lenders want to see. These include:
Amount of Time in Business
The first thing that lenders will want to know is how long your business has been in operation. Loan providers use your time in business to assess your creditworthiness and their risk in lending to you. The longer your company has been in operation, the lower their risk is typically considered. So, to qualify for business loans, most lenders require that you be in business for at least six months.
Another main requirement you must provide when applying for a business loan is your revenue. Most lenders want to see some sort of substantial and consistent annual business income before they give you a loan. In addition, they want to know if your company has the consistent cash flow to pay them back. Your revenue also helps lenders calculate the maximum amount you can borrow.
Lastly, lenders want to know your credit score. SBA loans and traditional bank loans require excellent to good personal credit scores to qualify for small business loans. But online lenders can be more lenient and will take into account your company’s cash flow and growth projections, as well.
However, to qualify for most business financing options, you must have a certain credit rating. FICO scores are commonly used in lending decisions. This ranges from 300 to 850. And when it comes to credit scores, the higher, the better. This is because a credit score represents your payment history, the amount of debt you have, and the length of your credit history. A higher score means you have been responsible for your debts in the past.
One other advantage of a higher credit rating is that it can help you get better interest rates and repayment terms. On AnnualCreditReport.com, you’re entitled to a free annual credit report from each of the three credit reporting agencies. These agencies include Equifax, Experian, and TransUnion.
If you have a more established company, you may have a business credit score. There are four main commercial scoring systems — Experian, Equifax, FICO, and Dun & Bradstreet — and their ranges vary significantly. If your score is low, taking out small business loans or starting a line of credit and using them responsibly can help you improve your business credit rating.
Other Lender-Specific Qualifications
On top of the criteria discussed above, banks and lenders also tend to ask for other documents when you apply for a loan. Some additional lender-specific requirements include:
- Legal documents: Some of the legal proofs you might be asked to show are a valid ID, such as a driver’s license or passport, your federal tax ID or employee identification number (EIN), and a copy of your business license.
- Financial documents: You may also be asked to provide information on your personal finances and any personal loans you have. So, get your personal and business income tax returns ready. You may also need copies of your personal and business bank statements and to disclose any leases you have under your name or your business.
- Business financial statements: Depending on the loan you’re applying for, you might be asked to present two to three years of balance sheets and income statements for your business.
- A written business plan: Some lenders will want to know that you have the means to repay them, so they may require that you write a business plan. The plan should detail how you plan to use the money and how you expect it to increase your profits. Increase your chances of getting a loan approval by including information that demonstrates you can cover operational business expenses and the new loan payments.
- Collateral for secured loans: If you’re applying for a secured loan, make sure you understand the terms of the loan and ready the necessary documents for the collateral. This reduces the back and forth and makes the verification and loan application process easier for you and the lender. Collateral could be business assets like equipment, vehicles, machinery, real estate, inventory, or accounts receivable.
Prequalify for a Business Loan
Clarify Capital Makes Getting a Small Business Loan Simple
At Clarify Capital, we understand that getting a loan is sometimes essential for a business’s growth and survival. We also know that you’re busy and don’t have the time to search across hundreds of lenders for the right funding option for your business needs. This is why we make the process quick and easy for you.
We offer fast and transparent applications that can be done in as little as two minutes! Apply online or call us directly at (877) 838-3919. There’s no fee or obligation to do this.
Our mission at Clarify is to help you pursue your business goals by getting the funding you need to meet your current financial obligations. This is why we work with more than 75 lenders to get you the best rate. You’ll also have a dedicated advisor who will work with you throughout the process.
Your advisor will help you choose the best financing option based on your needs and specific business goals. Your advisor is also there to help you understand the terms of your small business loan.
Once you’ve submitted your loan application and it’s approved, you’ll get access to the loan proceeds in as little as 24 hours. Your advisor will continue to help you achieve success every step of the way.
Frequently Asked Questions about Small Business Loans
You can apply for a small business loan in just a few easy steps. Simply fill out an application online and a Clarify lending advisor will help guide you through the entire process.
Lenders look at a few main factors to determine eligibility. For the best odds of approval, you’ll want to have a credit score of over 550, have been in business for at least 6 months, and a monthly revenue of at least 10k.
Interest rates depend on a number of factors, with credit score typically being a main consideration. At Clarify, we offer competitive financing. Interest rates start as low as 7% APR.
The term length depends on the type of loan and your specific requirements. At Clarify, we can work with you to find a loan duration that’s a good match for your needs. On average, the range is between 1 to 3 years long.