Is It Hard To Get A Small Business Loan?Tyler Sousa
By definition, something that is hard to attain requires a great deal of effort. Though it is often considered challenging, getting a small business loan is not hard – if you know where to start.
Since we hear the question, ‘how hard is it to get a business loan’ so often, we decided to answer it directly.
In this blog, we will discuss what you need to know before applying for business funding to make the process as simple as possible. In the following sections, we’ll ask 3 specific questions to help you identify the type of funding you’re looking for, how soon you need the loan, as well as what your business will need to show to lenders to prove you’re worth their investment.
What Type of Loan Is Right For Me?
If you’re worried about how hard it is to get a business loan, take the process in steps. First, figure out what type of loan you’re looking for by asking yourself these questions:
- How much funding do I need?
- How soon do I need the funding?
- How much funding can I realistically afford?
What you plan to use your funding for determines how much you’ll need. For example, if you’re looking for a loan to help manage daily expenses through your slow season, you’ll be interested in a short-term loan or line of business credit. If you’re looking to make a large purchase or open a new location, you’ll be better suited for a traditional term loan.
How soon you need funding depends on the urgency of your situation. If a piece of equipment that’s vital to your daily operations goes down or you’re presented with a time-sensitive business opportunity, an online business loan is the quickest option available. On the other hand, your options increase if you have no pressing issues and can afford to wait out the process of other lenders.
Finally, ask yourself how much funding you can afford to take on. While term loans with traditional lenders are almost exclusively repaid in monthly payments, other options like short-term cash flow loans offer weekly and even daily payment options.
Determine what type of payments your business can afford by taking your business’s monthly revenue and daily operation costs into consideration. Any other debt you’re already making payments towards is also important to include in your calculations. As a rule of thumb, your total monthly payments shouldn’t be more than a third of what your business’s monthly profit. This will allow you to operate comfortably without stretching yourself thin.
Which Lender Is Right for Me?
Business funding has quickly become a crowded industry. With traditional, alternative and now online lenders available, deciding which option makes the most sense for your business can be overwhelming. Fortunately, some lenders specialize in different types of loans, making it easier to narrow down your choices. Once you’ve decided which funding option fits your business’s needs best, you’ll have a better idea of which lender is right for you.
This type of funding provides owners with a quick solution to a short-term need like a temporary dip in cash flow. Short-term funding is no longer offered exclusively by alternative lenders as banks have begun to offer short-term loans as well.
|Advance Amount||Repayment Terms||Interest Rate||Speed of Funding|
|$3,000-$500,000||3-18 months||Starting at 10%||As fast as same day|
Traditional term loans offer business owners longer terms and lower interest rates but are harder to qualify for. Long-term funding is offered primarily by major financial institutions like banks.
|Advance Amount||Repayment Terms||Interest Rate||Speed of Funding|
|$10,000-$2,000,000||1-5 years||Starting at 7%||As fast as 1 day|
Getting an SBA loan
The Small Business Administration is also an option to consider. Getting an SBA loan with better rates and flexible terms is easier than other loans because the federal agency guarantees a portion of the loan, reducing risk for lenders.
SBA loans don’t get approved as fast as short-term loans with online lenders but they are faster than traditional term loans. SBA loans are offered through partnered lenders who you can find on their website.
Applying for a small business loan
Applying for a small business loan was once a tedious task that required a slew of paperwork. Now, most lenders have simplified the process with a convenient online application. Even some traditional lenders have joined their online counterparts in offering a much simpler way to apply for funding right from your desktop, tablet or smartphone.
What you need when applying for a small business loan
When applying for a small business loan, the basic documents you’ll need are your driver’s license, tax returns, bank statements, credit score and voided business check. Additional documents may be required depending on the lender.
How Do I Get Approved?
Getting approved for a small business loan requires you to meet certain standards. Every lender you apply with will look at your time in business, your annual revenue and your credit score. Lenders will use this information to analyze the health of your business. You won’t be able to change things like your credit score and annual revenue overnight but you can impact their decision in other ways.
Show lenders your business in a position to succeed by presenting a well-organized business plan, a list of references, an active target market and an engaging product. Too often, business owners approach these meetings unprepared and unable to explain their reason for applying.
It’s important be reasonable with your cash flow projections when presenting your business plan to your potential lender. Blowing things out of proportion won’t make you a more qualified applicant then if you are well calculated and down to earth with your cash flow forecast.
Be Patient If Possible
If you don’t have an immediate need for funding, there are other ways to improve your likeliness of an approval. Paying off debts, rebuilding your credit and, in some cases, offering collateral, are all ways to reduce risk for lenders.
How Easy Is It to Get a Small Business Loan?
You shouldn’t be asking ‘how hard is it to get a small business loan?’, you should be asking is ‘how easy is it?’.
Getting a business loan isn’t as hard as it’s perceived to be. Use the information we’ve provided here to break the process into steps and you’ll find it to be much less intimidating.
First, determine the purpose of the loan to give yourself a better idea of how much funding you’ll need. Then, determine how much funding you can afford by calculating your monthly profit. Finally, show your lender that your company is worth their investment with a well-thought-out business plan.
Fast Capital 360 makes getting a small business loan easier by finding you the best loan options in the marketplace. If you have questions about how we can help, give us a call today at (800) 735-6107, and one of our dedicated Business Advisors will be happy to guide you through our process.