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Delancey Street is a premier small business lender, based out of NYC, that has helped broker 100's of millions in business loans. They are a pro, at making sure you get all of your financing needs satisfied.
- Over $200 million in funding secured
- Can handle low risk credit
- Handles all industries
- Handles high risk and low risk loans
Steps to Secure a Small Business Loan: A Guide
Starting a business, no matter how small it may be, requires capital. This is where small business loans come into play. It is normal for new entrepreneurs to feel intimidated when applying for their first loan. However, this task does not have to be a hurdle if you prepare ahead of time and equip yourself with the knowledge you need to get your loan approved.
This guide aims to break down the different factors that affect getting a small business loan, including credit scores and loan types, as well as help you formulate a solid game plan for the application.
Preparing for the Loan Application Process
Before anything else, make sure that you indeed need a loan in the first place. Evaluate your cash flow and take note of your current expenses. With all those considered, sit down carefully and draw up a projected return on investment (ROI) chart or other similar document. Doing so should give you an idea of whether the cost and possible debt are worth the risk. The next step is choosing the right type of loan for your business.
Types of Loans
There are several ways to secure funding for your small business venture, one of which is through term loans. Term loans are installment loans that require regular payments over a set period, just like a mortgage. Another way is to obtain a loan through small business credit cards, which provide access to funds only when needed. Sometimes, businesses may opt for invoice financing or borrow from close family members or friends. It would be best if you did your due diligence and adequately research each type of loan to find which works best for your business.
Checking Your Credit Scores
Your personal credit score and business credit score hold significant weight in determining the amount of money a lender is willing to lend and the interest rates involved. Prioritize maintaining and improving both these credit scores before even needing larger loans; doing so can eliminate potential obstacles in the future. Building up your scores takes time, so keep tabs on them by monitoring them regularly. Being a credit-savvy business owner is advantageous when it comes to securing funding.
Business Credit Scores and How They Work
Your ability to pay on time makes up a considerable part of your business credit score. Prompt payments to creditors and vendors will reflect positively when lenders evaluate your loan application. Having proof of the separation between personal and business finances can help shore up your business credit score. Ensure that you are not mixing these two sets of finances by creating a separate business account early in the game. Take advantage of secured cards for smooth transactions whenever possible. Making small payments with cash-on-hand and settling vendor payments swiftly also contribute to increasing your business credit score.
Personal Credit Scores and Their Impact
Lenders look for individuals who demonstrate responsibility in their financial dealings, and having high personal credit scores indicates just that. When you pay your bills punctually, each repayment builds your credit score slowly but surely. So make sure that you stay current on all payments. The FICO and Vantage Score both use loan payment timeliness as one of their factors. Building up your credit score may take several years, but the end goal is worth the investment. Avoiding hefty monthly interest charges on long-term loans requires paying off any balance if you can avoid it.
How to Improve Your Score
A yearly free report from credit bureaus helps make monitoring your credit score attainable. Try obtaining this information through websites such as Credit Karma, and track your progress using their platform. Paying off existing liabilities will always increase your credit score while establishing correct reporting on good payments from vendors or creditors can further elevate it. A few other things that can hurt your credit score apart from the extension of debts are incorrect reports, delinquent taxes or other mandatory fees, and fixed expenses non-payment. Avoid burnout due to balancing too much debt by joining forces with trusted lenders that offer real-time credit monitoring to prevent any fraud or identity theft from happening.
Making Your Reason Air Tight
Lenders need to know how its borrowers will use the loan money. Having a specific and thorough plan should demonstrate to them that you have put some thought into things. Saying precisely what you intend to use the funds for can set you apart from other applicants. The bank will ask how much of an investment in equipment or hire will be necessary, and it is your job to answer with specifics such as ROI charts or case studies.
How to Show Mastery of Your Finances
It is essential to establish competency in understanding your finances, starting with hiring an accountant to prepare and organize your financial statement. A common list of these statements includes cash flow, balance sheets, and income statements showing the profitability of the business if possible. When applying for loans, these financial documents can lend credibility to an application. Suppose a business is not yet profitable based on revenue. In that case, it is crucial to show the lender where the potential areas for growth are while keeping costs generally low. Knowing your numbers will enable you to provide a detailed breakdown of how your business operates, thus promoting financial literacy.
Not All Low-Interest Rates Are Cheaper
Some banks may offer lower APRs or interest rates to compete with competitors, but higher fees make up for the difference. Compare both costs before deciding which loan type to take; guaranteed loans typically come with higher fees than unsecured loans. The APR reflects more accurately the costs associated with any loan since it considers other underlying factors influencing the actual rate.
Closing Thoughts Before Applying for a Small Business Loan
Demonstrate a strong sense of maturity, responsibility, and transparency when applying for any loan. Admitting the level of your credit scores, having a clear plan, and presenting organized financial documents give lenders the impression you value your relationship with them. Come prepared by bringing copies of income statements or tax returns, cash flow statements, and balance sheets dating back two years at least. The ability to tell lenders that you have a robust credit score and a concrete use case for the loan can only increase your chances of securing financing.
In summary, make sure to:
– Evaluate need before applying
– Look into all types of loans available
– Monitor both personal and business credit score regularly
– Maintain your credit report data
– Have a solid spending plan
– Show mastery over finances
– Ensure overall costs are within allowance
– Come prepared with relevant documents