Entrepreneurship opens several gateways for entrepreneurs to grow their businesses. However, most of the paths that lead to a company’s success require funds. When the capital falls short, entrepreneurs often fall into the dilemma of arranging funds. Thanks to the extensive facilities available today, entrepreneurs can approach investors, banks, and credit facilities to support their businesses. This goes without saying that SBA loans will help you expand into new markets and territories, hire new people, market your products, and much more. Even today, the lending or credit process stands complex for many business owners; however, by applying the right tactics and strategies, you can understand the process and receive the monetary support your business needs. Here are four tips with insights into the entire lending process.
Tip 1: Understand the loan types in SBA loans
SBA loans come in various forms: 7(a), 504 loans, Microloans, and SBA disaster loans. Knowing your business needs, length of the loan, rate of interest, and the credit’s specific term will help streamline the application process and improve the chances of approval.
- 7(a) loans are used for equipment purchase, working capital, or expansion. These loans are federally guaranteed.
- Five hundred four loans are used for buying land, facilities, or machinery.
- Microloans, as the name suggests, amount less as compared to 7(a) and 504. Generally, the aggregate funding is less than $50,000, ideal for working capital, procuring equipment, purchasing inventory, or even starting a small business.
- SBA disaster loans have a sanctioned upper limit of $2,000,000 covering small businesses impacted by unforeseen circumstances like natural disasters or other emergencies.
Tip 2: Prepare all your documents and details for a smooth process
If you’re hoping your application process will sail through smoothly, there are certain things you should be mindful of. As per Vito Proietti, you must accumulate and provide all the necessary documents and information from your end. Ensure that you have everything organized to give the details to the bank lender in the stipulated time. As a best practice, you should list down what the bank might ask you for. So, consult the lenders about their requirements and start preparing your documents accordingly. They might ask you for the name of the business, list of officers and their background, financial statements, amount of loan required, and so on.
Tip 3: Analyze their view of your credit and risk profile
A sanction is approved majorly based on documentation and a borrower’s credit and risk profile. Review all the plus and minus points of your profile and anticipate how it would look to the lenders. Analyze outstanding cash flow, business assets, credit reports, financial statements, time in business, investors, and other factors. Take appropriate remedial action if needed. Secure your case before the lenders review the case.
Tip 4: Study the key terms of the proposed business loan
It’s essential to get educated about the proposed business loan. The loan you’re going for should make sense for your business. That said, check through the key terms and compare them with what the other lenders offer.
Keep in mind that the key terms such as interest rate, interest payable, payment of principal, origination fees, and other aspects of the loan should be known to you and the other business partners (if any) before finalizing anything.