5 Steps to Qualifying for Small Business Loans


Typically, small businesses consider borrowing loans from commercial banks and other organizations that affiliate with the Small Business Administration or other lending companies. Yes, small business loans are available from various alternative and traditional lenders. Small business loans are important for startups because it helps businesses grow, expand into new territories, fund new development and research, enhance marketing efforts, sales, allow the hiring of new people, and much more.

However, the very first step in the process is to consider your financial needs, and how much loan your business actually needs. The next step is to write out a second plan of business, listing all the objectives of your business, showing your financial projections and your business aligned well with your financing needs.

Then you have to consider your credit factors and things that can improve your chances to obtain a business loan, like the positive potential of cash flow, collateral presence, and valid tools for resource management. You then have to assemble your loan documentation, including various other financial and legal documents.

The final step is to compile a comprehensive list of lending organizations and contact them to evaluate the best one to provide you with the loan on the right terms.

As you read on below, learn about some key steps you should take in getting your small business loan.

Evaluate Your Financial Situation

Before you contact any lender or one you know such as Orumfy, you need to evaluate your financial needs and your situation first. You should determine the purpose or reasons to why you need the loan.

To be precise, you should try to figure out the amount of cash flow your business will generate and the areas that will need more capital. It could be that you plan to expand your business, or wish to start one from the scratch, or need some capital to invest in assets, buy necessary inventory, cover fixed and operating costs, or pay vendors.

This depends on the nature of your small business and its financial situation. Keep in mind that if the business is one that operated in a cylindrical industry and needs a loan for the purchase of assets, then the interest rate will be higher. However, a noncyclical business can expect some lower interest for the loan.

Prepare a Business Plan

For the application of your loan, you need to prepare a suitable business plan. The document has to outline the purpose of your business, how it operates, and it should have some historical financial projections or records for years to come ahead (at least 25 years ahead).

The business plan should clearly outline how your business plans to grow its revenue and the profits. Note that having a good plan will help both the lender and the seeker of the loan. You should think about the important elements for the success of your small business. Although many tools are available to assist you in preparing a strong business plan, the SBA tool is a resource small business owners can depend on.

Your Financial Records Should Be in the Right Order

This factor depends on your loan size. The lender will have to see your accounting records and financial statements. Hence, you need to make sure that you keep everything in the right order, should be thorough, correct, and complete. You need to analyze your gross margin, cash flow, accounts payable, gross margin, accounts receivable, payable, and prepare well to answer any question the lenders ask you.

A piece of advice is to have your personal accountant go through your financial records and statements to scan for any issues or errors those lenders may detect.

Note that some lenders prefer to see statements that certified public accountants (or CPA) audit. However, other small businesses avoid incurring the costs of the audit. The best alternative is to review financial statements that are faster and cheaper. Depending on the lender you choose, you may not need to require reviewed or audited statements.

Credit Factors

When you prepare for the loan application, you also have to consider your credit factors and this should help to improve your chances of acquiring a loan. You need to prove it to the lenders that your business will generate sufficient cash flows, which should cover the operating expenses and be able to pay the interests that will come in the future.

Determine the Guarantee You Have to Provide

Know that the concern of any lender is to be sure about your ability to repay and borrow the loan. Sometimes, you may need to give a security interest to the lender or the company’s asset (could be property, company equipment, accounts receivable, property, etc.) these should increase the chances of the small business to get small business loans on the right terms.

Acquiring a loan for your small business is not so difficult. Follow these steps and you are sure to get the best loan.