How to Get a Loan to Start a Business
Starting a business, whether big or small, requires money. Therefore, acquiring money to start a business is one of a business owner’s first steps.
It is much easier for individuals to start a business if they already have money to invest. However, if you’re not as fortunate, you’ll have to get funds to kick off your business idea.
A business loan is a splendid way to get funds to start your business, although it is not always as easy as it sounds. Not to worry, if you want to learn about how to get a loan to start a business, you’ve come to the right place! Below are actionable steps you can take.
1. Create a Business Plan
Your business plan is the roadmap to your entire business. It is not only beneficial for personal use, but it also shows your lenders that you know what you are doing and you’re serious about it.
If you’re hoping to impress investors, make sure your business plan shows what makes your business stand out.
Furthermore, it should show what you need to kick off, your sales projections, expenses, and how you plan on making your business grow.
This is an excellent way to show lenders that your business will yield enough profit to repay the loan. This is important as you do not have a track record yet.
2. Register Your Business
Having a business plan is a great way to show lenders that you are serious about your business. However, another step you should take is registering your startup.
Registering your business with the State means you have filed your business with all the required bodies. It also means you have paid for and acquired all the licenses and permits needed to run a business. You can easily register your business online.
You could also take your business further by registering for a patent or trademark with the United States Trademark and Patent Office (USPTO).
3. Gather Important Documentation
Different banks and lenders require varying documents from you; however, there are specific documents that most of them ask for. Try and get them in order.
Most banks and lenders require personal credit scores, bank statements, resumes, personal tax returns, supporting IRS documents, income statements, among others.
4. Get Your Finances in Order
As a soon-to-be business owner, you do not have a credit record for your business; this is why your bank or lender will take a look at your personal credit report.
Before that happens, check your personal credit report for any problems and take care of them. If banks or lenders see that you have a good credit score, they are more likely to give you a loan than if you don’t.
5. Choose a Type of Loan
Before you start applying for business loans, you need to think about the type of loan you need to fund your business. You also need to consider if you’re eligible for the type of loan you wish to take. Find below some loan options available.
● Traditional Term Loans
These are broken into short-term and long-term loans. Short-term loans usually range from $5,000 to $500,000, and you are given a period of three to 18 months to make repayment.
On the other hand, long-term loans have a much higher maximum amount. You have three to ten years to make the repayment, and the interest rates are low.
● SBA Loans
You can also get funding from the Small Business Administration (SBA). The Small Business Administration does not give out loans. Instead, it works with other financial institutions to help you get the right loan for your business.
The administration offers different programs depending on the purpose of the loan, and the loan amount can reach up to $5.5 million.
● Startup Financing
There are startup financings like personal loans and business credit cards. However, you need to show that you have a steady cash inflow to get these loans; this isn’t feasible if you are just starting. Also, the interest rates are relatively high.
● Business Line of Credit
A business line of credit is perfect for day-to-day expenses because you can take loans as the need for funds arises. You essentially take out funds till you reach your credit limit.
Once you reach your credit limit, you can repay what you took and start over. Credit limits range from $100,000 to $200,000. Unfortunately, some lenders require collateral, and you must have been in business for at least six months.
Money is a necessity when starting up a business and getting a loan for your startup is a great way to go. How difficult it is to get a loan depends entirely on the type of loan you want, your documentation, and your qualifications. If you have all of these and understand all it takes to get a loan, then the process should be a breeze.
Now that you know how to get a loan to start a business, keep an eye out for loan rates and terms that you are comfortable with. This is important so you don’t end up with more than you can handle.