A business loan can keep a business afloat or open new paths to increased revenue. It’s a simple process, but there are a few crucial factors to consider at each step. This quick guide will cover the key parts of each step to securing a business loan.
Let’s break down the business loan process.
One: Decide Which Loan Type You Need
Decide which type of loan you need, given your current circumstances. Some business loan products are only available or only make sense in specific situations.
Most business loans fall into one of these categories:
- Business term loan.
- Business line of credit.
- Equipment financing.
- Business vehicle financing.
- Invoice factoring.
- Working capital loan.
- Business credit card.
Consider what specific expenses you need to finance and research the available loan products.
Two: Consider Your Qualifications
Next, determine if you can qualify for the type of loan you want and afford the risk. There are different types of lenders you can apply with:
- Credit unions
- Banks
- Alternative lenders
Credit unions are largely exclusive organizations, but they offer favorable rates and terms. Banks generally offer good rates to qualified borrowers but often still have high requirements. Alternative lenders normally charge higher rates but provide funds faster than others.
You need to weigh your qualifications and risk appetite. When you can provide your basic business credit information, you can quickly get a look at available business loans. For example:
See available business loans in Poland
See available business loans in Holland
See available business loans in Germany
See available business loans in Italy
Three: Compare Available Business Loans
In addition to the basic categories, decide on the type of lender you will borrow from and what rates and terms you qualify for.
For example, many governments offer or back loan products under specific circumstances. If you qualify for such a loan, you can secure competitive rates and long repayment terms.
After examining the most favorable loans you can qualify for, start comparing them. Remember to consider the APR, including the total interest and all fees.
Lenders must normally follow limits on interest rates and repayment terms set by national financial regulators. But within those limits, they can charge whatever they want. Consider the repayment term, as that will set not just the amount of time you have to repay but your monthly repayments as well.
Four: Collect Application Materials
So, now you’ve focused on a few of the best available options for your business. Before you are able to secure any one of them, you will need a few things ready:
a) Basic business information
- Business name
- Address
- Employer ID number or other relevant ID
- Business plan
- Names and information of major company stakeholders
b) Your collection of financial statements
c) Bank statement
d) Tax return
e) Documentation for collateral
From their end, business lenders will often require you to go over and sign documents. A common example is a personal guarantee, which the lender would give you to review and sign.
Five: Formally Apply for the Business Loan
Now that everything is in order, you must submit a formal application. The specific process depends on the location and the lender, but it will be similar in most cases.
Online lenders normally host their own platforms where you can set up an account. You can get everything done through one simple platform. From there, you would manage the application, documentation, and repayment processes.
Traditional lenders like banks also normally offer service from web portals. But they may also ask you to apply at your local branch or over the phone. Some business loan products can be taken in an all-online process, while others cannot.
Lastly, you will want to have your application reviewed before sending it. Some organizations provide this assistance, or you can have a qualified employee or contractor do it. This may reduce the time and cost of any back-and-forth resulting from the lender needing to ask questions or review details.
Next, the lender will either deny your application or send you an offer.
Six: Review the Loan Agreement
Upon approval, the lender will send you the loan agreement to finalize and sign. This is your last chance to go over the:
- Loan amount.
- Repayment terms.
- Payment schedule.
- Interest rates.
- Fees.
If you are unclear about anything laid out in the loans agreement, now is a good time to ask.
Seven: Accept the Terms
If you find the terms agreeable, all you need to do is agree to them to confirm your loan.
Once you accept the terms, your funds should be dispersed immediately and the contract starts. If you are able to make your repayments as per the agreed-upon schedule, everything should proceed in a predictable manner.
Alternative: Consider Personal Loans
One alternative to a business loan is a personal loan. This route is normally taken by borrowers who can’t yet qualify for business loans, such as those running startups.
Unlike business loans or other financing methods, your business’s credit history and finances aren’t taken into account. Instead, your personal credit is the determining factor. You can’t normally secure personal loans that are quite as large, but you can get better rates and easier access.
