When considering taking out a loan to fund your business venture, make home improvements or pay off debt, there are several steps to take first. Before applying for the loan, however, make sure you know all relevant details.
First, evaluate your disposable income and decide how much you can comfortably afford to borrow. Doing this will enable you to compare interest rates and payment terms before applying for a loan.
Next, get your credit score from each major reporting agency. Your credit score plays a vital role in determining loan eligibility, so make sure it’s accurate. Any errors could negatively affect your score and hinder your chances for getting approved for a loan.
Finally, make sure all your documents are ready before beginning the application process. This includes your state-issued ID, proof of employment (such as a recent pay stub), proof of residence and bank statements.
To verify your identity and address, the lender will require these documents. After you submit the paperwork, they will review it quickly and call you with a decision within minutes or days.
Once your credit has been reviewed, you should receive a term sheet for your loan. Be sure to read it thoroughly and ask any questions if necessary; the lender should be able to answer them and provide additional details like fees or third-party report expenses.
Before you submit your application, contact the lender to inquire if they have any special requirements or qualifications. Some lenders have industry standards that must be met, while others may work with businesses deemed “riskier.”
Lenders also want to know about your business’ profitability. If it is not profitable, it will be difficult for them to believe you can pay back the loan.
Your business’ tax returns are essential for lenders to assess. They demonstrate whether you’re filing taxes and earning money, both of which have an impact on loan approval.
When applying for a small business loan, make sure your tax return includes all pertinent income and expenses. This will assist the lender in assessing your business’ financial health; additionally, it could serve as collateral if you fall behind on payments.
In addition to your tax returns, most loan programs require a business plan. This should include an extensive set of projected financial statements such as profit and loss, cash flow forecasting, and balance sheets.
The purpose of a business plan is to give an accurate depiction of your company and its financial performance. Furthermore, it should highlight the objectives and strategies that will drive its expansion.
Once your business has a sound plan and healthy financials, you’ll be well on the way to submitting your loan application. Giving accurate answers to the lender’s questions is key for speedy approval during this critical stage.