Without working capital, your business may struggle to do what’s necessary to stay afloat. That includes everything from meeting payroll to paying taxes to buying raw materials and inventory. For many business owners, the solution is taking out a business loan to give them the cash they need.
At CFE, we work closely with our business members every day. One of the most common questions they ask is how to get a business loan. They want to know what they can do to streamline the process and get approved for a loan.
With that in mind, here’s what you need to know to apply for and get a new business loan as quickly as possible.
Set Up a Separate Business Bank Account
The first thing you must do if you want to apply for a business loan is set up a separate bank account for your business if you haven’t already done so. If your business is a sole proprietorship or an LLC, then you may not have taken this step yet.
Maintaining separate bank accounts for your business makes good financial sense even if you’re not applying for a loan. You can run into accounting and tax trouble if you mingle your personal and business finances. Having a separate account shows potential lenders that you take managing your business finances seriously.
Check Your Business Credit Score
Your business credit score is something any potential lender will check when processing a loan application. For that reason, it’s important to pull a current credit report to make sure your score is solid and that you have no issues that need to be resolved.
Both Dun & Bradstreet and Experian issue business credit reports. You should take the time to review yours and then correct an errors or discrepancies before you apply for a loan. While you’re at it, you should also review your personal credit. If a lender requires you to sign a personal guarantee, they’ll also check your consumer credit score with the three main credit bureaus.
Decide How Much Capital You Need
Next, you should crunch the numbers and determine the size of the loan you need. Your lender is going to want to know how much you need and what you intend to use the money for. For that reason, it’s essential to clarify your needs and expectations, so you can articulate them when you apply for your loan.
At the same time you calculate the loan amount you need, you should also use a loan calculator to make sure you will have the cash flow necessary to make your monthly payments on time and repay the loan. Any potential lender will want to be certain you can be counted on to repay them. Doing some simple calculations beforehand will ensure that you can be confident going into the process.
Gather the Necessary Documentation
The loan application you complete will request supporting documentation. While each lending institution has its own requirements, many of them will overlap. To begin with, you’ll need all of the following documents:
- Business Loan Application - Lender provided - filled out
- A current profit and loss statement for your business
- Business Debt Schedule - Lender provided - filled out
- A projected financial statement
- A current bank statement for your business
- Your business certificate, applicable licenses, and a copy of your Federal ID letter
- Personal Financial Statement - Lender provided - filled out
- Three years of business and personal tax returns, complete with all Schedules and Statements
- Your loan history (if applicable)
- A copy of your business lease, purchase contract, or invoice
You should review each loan application for any requirements beyond those that are listed here. Filling out the application completely and providing all supporting documentation is one of the best ways to expedite your loan.
Borrow from a Reputable Lender
So far, we have focused mostly on your end of the loan process. However, there’s another side to consider as well. When you take out a loan, you’re trusting the lender to adhere to their part of the agreement, provide you with the money you need, and work with you going forward.
For that reason, it’s important to work with a reputable business lender. You may prefer to apply for a loan from the credit union or bank where you have your business banking account – and there are some advantages to doing so. If you have a history with them, then you can also have some confidence that you’ll get the service you need.
At CFE, many of our business members have checking or savings accounts with us when they apply for a business loan.
Respond Quickly to Questions
Once your application has been submitted to the lender, you may still need to answer questions or clarify things with the loan officer. Make sure to respond to all inquiries promptly. The more quickly you respond, the less likely it is that your application will be set aside while the officer processes an application from someone else.
Applying for a business loan isn’t difficult, but being methodical about the process will help to ensure your loan is processed – and approved – as quickly as possible.
To learn about CFE’s business loans, please click here now.