8 Easy Steps to Quick Business Loans
To get your business off the ground and running, you're probably going to need a loan. Follow these eight easy steps to quick business loans.
In order to be successful, every small business needs to grow. And most of the time, this will require an infusion of cash along the way.
Quick business loans are an excellent way for you to finance this growth. But there are a few things you need to consider when applying for a small business loan.
Read on to learn how you can choose the best loan for your business and scale this year.
Everything You Need to Know About Quick Business Loans
After the global financial crisis, lending to small businesses fell 14%. Now, small business lending is picking up, giving you many different options for your loans.
Quick business loans aren't complicated, but you'll need to do some preparation to increase your chances of success.
Once you can prove that you need a loan so your business can grow, you can move on with these steps:
1. Understand Which Loans Are Available
There are a number of quick business loans available for small businesses. Your options will vary depending on the length of the loan, the specific terms, and your business needs.
Here are a few of your options:
Line of Credit
You may be able to get a small business line of credit. This allows you to access funds from your lender as you need them. You'll have a limit on the amount of funds you can access, but this is a great way to manage any unexpected expenses and ensure you have a healthy cash flow.
While you'll usually need to pay a fee to set up a line of credit, you won't be charged interest until you're actually drawing down the funds.
Working Capital Loan
These loans finance your daily operations. This can be a great way to manage fluctuations in expenses and revenues due to circumstances like holidays or seasonality.
You may be able to get an unsecured capital loan, but if you don't have a great credit history you'll usually need to provide a personal guarantee.
Accounts Receivable Financing
This is a line of credit secured by your accounts receivable. This means you can immediately get cash depending on the level of your AR. This line of credit is then paid down as your customers pay your accounts receivable.
Small business term loans will usually have a set amount (e.g $100,000). They're usually used for expansion, capital expenditures, or business operations.
You'll pay interest monthly, with the principal repayable between 6 months or 3 years. These loans can either be unsecured or secured, with fixed or variable interest rates. They're a good option if you're looking for capital to help you grow, or have a large, one-time expense.
2. Research Your Lenders
There are many lenders available for quick business loans. The lender you choose will depend on your credit score, the amount you need to borrow, and the terms you're looking for.
Here are just a few of your options:
There are many online lenders that make it easy for you to get quick business loans. Short term loans can range from $5,000 to $500,000. Some websites will compare multiple lenders so you can see terms and interest rates at a glance.
Community banks often prioritize lending to small businesses in the local area. This can be a good option if have a brick-and-mortar business.
These banks include well-known lenders like Citibank, JP Morgan, and Wells Fargo. You'll find that the process is often slower, and they usually have a more rigorous criteria for their loan underwriting.
3. Know Your Credit and Risk
Before you begin the loan application process, you'll need to see if you're eligible. Banks and lenders will make a judgment about whether you're eligible for quick business loans based on your credit and risk profile.
Here are some of the things they'll consider:
Your Credit Score
Lenders will check your credit score and credit report. They want to see that you have a history of making your payments on time.
If you're a small business owner, lenders will use your personal credit score to make a decision about whether you should receive a loan, and how much you should receive.
Generally, you'll need a score of at least 650-700, but many lenders will be looking for a credit score between 700-800. You can check your credit score for free at Credit Karma.
Cash Flow and Outstanding Loans
Lenders want to see that you'll have enough cash flow to pay your existing obligations and loans, and any new loans you'll receive.
When you apply for a loan, the lender will also review your business assets. This gives them confidence that they can go after you in the event that you default on a loan.
Time in Business
Most lenders will be more likely to provide quick business loans to businesses that have been in operation for at least a few years.
As you can see, lenders will want to determine whether you're likely to pay back your loan. They do this by looking at your past financial history, and the current outlook of your business. Before you begin applying for loans, take a good look at your credit score and take any appropriate remedial action.
4. Check Your Financial Statements
Depending on how large the loan is, your accounting records and financial statements may be carefully reviewed by your lender.
You'll need to make sure they're thorough, correct, and complete. They should include your cash flow statements, income and loss statements, and balance sheet.
If you're looking for a sizeable loan, expect the lender to analyze your:
- Earnings before interest, tax, depreciation, and amortization (EBITDA)
- Accounts receivable
- Accounts payable
- Debt-to-equity ratio
- Gross margin
- Cash flow
You should expect to answer any questions on these topics. It may also be a good idea to get your accountant to check your financial statements for any issues.
Some lenders prefer your financial statements to have been audited by a CPA (certified public accountant). But the cost of an audit can be expensive for a small business. You may be able to have your statements "reviewed" instead since it's faster and cheaper.
5. Gather Detailed Information
When you're applying for quick business loans, you'll need to provide detailed documents and information about your business. Being organized and prepared will give you the best chance of success.
Here's some of the information you'll need:
- Federal Tax ID
- Name of your business
- Executive officers
- 2-3 years of financial statements
- Year-to-date financials for this year
- Legal structure (e.g C corporation, S corporation, LLC)
- State filings such as good standing certificates, foreign corporation filings etc
- Projected financial statements
- Potential collateral
- Executive summary or business plans
- Bank statements for the business
- 2-3 years of tax returns.
Before you begin the application process, gather the above information and have it ready to go. This will ensure that you don't have to quickly find key documents or deal with back-and-forth emails during the process.
Show Your Business Plan
While all of the above information is important when applying for quick business loans, your business plan is arguably the most helpful document.
A detailed business plan is the best way to sell your financial strength and vision to potential lenders.
A strong plan will tell your company's story, from the initial idea to the company's beginning, to its current relationship with customers and vendors. It illustrates your mission and your business' roadmap for meeting its milestones and achieving its goals.
If you submit a comprehensive business plan which demonstrates previous success and your belief in your business, lenders are much more likely to believe you have a good chance at succeeding and paying your loan back on time.
6. Specify Borrowing Amount and Expected Use
This is one of the first things you'll need to do. Quick business loans are used for many different things, including furniture, supplies, equipment, and inventory.
The reasons why you need your loan will determine which loans are available and which lenders will be willing to lend to you. There are both good and bad reasons for quick business loans. Some examples of good reasons include:
- Long term software development
- Real estate
- Financing a large piece of equipment
- Seasonal sales variances
- Hiring or expansion
- Inventory increase
- Marketing campaigns
- Product development
Some examples of bad reasons include:
- Non-essential business assets
- Office build-outs
- Financing ongoing losses.
You'll also need to decide how much money your business will need. Often, small businesses don't get a large enough loan initially. If you underestimate how much money you need, you may have problems with cash flow and working capital sooner than anticipated. Borrowing a little more can help you out in case you have a slow month or two and run into a cash crunch.
However, overestimating your loan is another problem, and it can cause lenders to question your credibility and assumptions. You should take the time to create a well thought out budget. Ensure you show your research and it's supported by your financial projections.
7. Determine Your Guarantee
Every lender wants to know that you're able to repay your quick business loans. And they want to see that you have "skin in the game."
One of the biggest ways to prove that you can guarantee the loan is to risk your own capital, not just capital from your loans.
You can also use a security interest on your company assets, such as accounts receivable, property, or company equipment to increase your chances of getting the best loan and terms available.
While some lenders will insist that you guarantee the loan personally, this will put your personal assets (such as your home) at risk. For this reason, it can be worth shopping around for quick business loans that don't require your personal property as guarantees, unless you're 100% sure that you can service the loan.
8. Analyze the Loan
Once you've found a lender you're happy with and you're ready to go ahead with your application, it's time to make sure that it will work for your business.
That means analyzing the key terms the lender is proposing and comparing them with the terms that alternative lenders offer.
Here are 10 things to consider:
- What is the interest rate and will this vary over time?
- How often will you pay the interest (monthly or weekly)?
- When will the principal be due, or how will it be amortized over the loan's life?
- Are you comfortable with the combined principal and interest payments?
- What are the other fees or costs associated? These could include loan processing, administration fees, underwriting fees and more.
- When can the lender call a default on your loan?
- Do you need to provide any collateral or security?
- What financial statements or periodic reports do you need to provide?
- Do you have any limits on how you can use the loan?
- Can you repay the loan early without any penalties?
If this is your first business loan, it may be worth checking out some resources or consulting an expert to see if the terms are agreeable. If you work with your CPA from the beginning of the process, you'll lay a great foundation and will have stability for the financial and tax reporting strategies.
It's also a good idea to make sure your insurance is up to date and you have the right amount of insurance for your business.
By insuring against risk, you lower your chance of defaulting and increase how attractive you are to lenders.
Ready to Get Started?
As you can see, there are a few things you can do to make your loan application process go more smoothly. Invest some time and energy in your groundwork before you begin submitting applications, and get help for your cash flow or credit before you approach lenders
By completing the above steps, you'll find applying for quick business loans easier, and will increase your chances of success. Once you're confident about your position, compare different loans and terms to identify the best loan for your business.
This will allow you to grow your business and scale effectively.
If you're looking for a loan for your business, get in touch today to learn how we can help.