There’s no getting around the fact that starting a business can be a real challenge. It can be exciting, exhilarating, and satisfying to be sure — but at times it can also be difficult as entrepreneurs must overcome hurdles to succeed.
One of the earliest trials business owners face is figuring out how to get the funding necessary to launch and grow. When asked by the U.S. Chamber of Commerce about their biggest challenges, the most common answer from startup entrepreneurs across industries: financing. While some interviewees self-funded, many others had to seek out other ways to get their capital.
If self-funding isn’t an option, getting a small business loan is another common funding method worth looking into.
Understand Your Capital Needs
Knowing you need money from an outside funder is a start, but it’s worth figuring out exactly how much you need and for which purposes before you even start comparing available loans.
Your capital needs will go hand-in-hand with your business goals. If you can answer the question, “What are you trying to do with your business?” then you have a starting point for calculating how much it will cost to get to that next level.
Some reasons why entrepreneurs need loans include: operations, equipment, and invoice advances. Getting the “what” and “why” right will help you immensely as you actually start comparing available loans out there.
Shop Around for a Fitting Lender
You know how much you need and why — now it’s time to figure out the “who,” otherwise known as the lender that’ll hopefully be able to furnish your request for funding. There are two main avenues to explore: traditional and online-only.
According to Verizon Small Business, comparing lenders for small business loans means looking at loan terms and annual percentage rates (APRs) offered on loan products. This will help you figure out how much you’d pay total to borrow money from a given lender. Gathering this information will allow you to compare different options head-to-head before you narrow down your decision.
Determine Your Eligibility
You’ll also want to make note of the requirements set forth by each lender while researching. For example, some companies lay out a minimum credit score required to even be eligible for loans. Entrepreneurs with strong credit histories will find themselves eligible for more loan products at lower APRs. But there is good news for borrowers with average or even bad credit — nowadays many online lenders offer more flexible terms, though there is a typical trade-off of higher APR, or perhaps requiring collateral.
Get Your Documentation Ready
What materials might you need to apply for a loan? The U.S. Small Business Administration keeps a running checklist of documentation, including items like:
- Business plan
- Financial statements (profit & loss, etc.)
- License/certification
- Tax returns
- Resumes
Applying for a loan is a great reminder of the benefits of keeping your business plan up to date — allowing you to apply for funding efficiently because you keep your documentation current.
Submit Your Application
The last step simply involves actually sitting down and applying — which should be pretty smooth as long as you’ve completed all the other steps. If you have done your research and gathered up all the paperwork you’ll need, it should not take long to apply. The lender will then reach out with their verdict or further instructions on what you’ll need to do to stay in the running for your desired loan.
Getting a small business loan can provide the boost fledgling companies need to get to the next level. Taking the time to understand the process can help you increase your chances of approval.