Are you an established small business owner ready for growth? The right low-cost loan at the right time can help your business expand and save money.
Starting a loan application may seem like a daunting task so we’ve put together steps to help you prepare for a smooth and swift loan process.
#1 Determine the Best Loan Product
In the past, a small business owner simply went to the local bank for a loan. These days, there’s a dizzying array of loan products available. The key is to get the lowest rates with the longest terms along with low monthly payments that won’t crunch cash flow. Your best bet might be an SBA loan, generally known as the “gold standard” in small business funding. Other options include term loans, business lines of credit, merchant cash advances, equipment financing and invoice factoring. For a deeper dive into these options, check out 5 Types of Loans for Small Business Owners. Remember to read the fine print and ask questions so you know exactly how much a loan will cost you over time.
#2 Assess Your Business Finances
Analyzing financial documents and crunching numbers isn’t always a skill that entrepreneurs bring to the table. However, regularly checking the financial health of your business is one of the most important practices to put into place, especially when applying for funding. SmartBiz Loans CEO Evan Singer says, “Many small businesses not only don’t know how a bank thinks about them, but they don’t have a good picture of their financial health.”
There’s a fast and free way to determine where you stand and your likelihood of approval. Sign up for free for the new SmartBiz Advisor™, an online educational tool. SmartBiz Advisor helps you learn about the seven key criteria banks consider when assessing your business: business and personal credit, combined debt coverage, business debt coverage, business debt usage, and business revenue trends.
Give yourself the power to understand the financial health of your business and how you can improve your numbers before you start a loan application.
#3 Determine Use of Proceeds
Most lenders want to know how you’ll use loan proceeds. There are many ways to save money and grow your business with outside funds. Here are a few examples of how established businesses used low-cost funds from an SBA loan:
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Paying off High-Interest Debt Milton Martinez owns Triple D Towing in Texas. By paying off two small loans with an SBA loan, he’s saving between $15,000 to $18,000 dollars. That’s money he can put back into his business or into savings.
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Expand Your Product or Services Tasteful Additions, gourmet salts and vinegar shop in upstate New York, is owned by
Asha Waterstreet. With an infusion of low cost funds, she was able to add luxury body products and tableware to her line up. Current customers increased spending and she
attracted new shoppers. -
Purchase Additional Inventory SkateXS is a successful skateboard business in Southern California. Demand for their product skyrockets towards the end of the year. Owner Bryan Tracey says “During
Christmas, we can get over 10 times our normal orders in a single day. Somehow we had to come up with significant cash flow in August and September to get inventory ready.” Tracey actually had to turn off Amazon sales, as they couldn’t keep up. He got a great rate on a $150,000 10-year SBA loan and the company was able to sail through the next holiday season in a much stronger financial position. -
Buy New Equipment Even with strong revenue, there might be an expensive equipment purchase you need to keep up and running. With a low-cost loan, you can purchase equipment you need
without crunching cash flow. Randy Jacques owns Southern Utah’s The Tree Guy. As his business grew, Jacques realized that he needed additional equipment to keep up with demand. An SBA loan was the right choice for his business and he’s now successfully expanding to other parts of the state.
#4 Prepare Financial Documents
There’s no way around it. When you apply for a loan, you need to produce paperwork for the lender. Financial documents that might be required include personal and business income tax returns, a balance sheet and income statement, personal and business bank statements, commercial lease agreements, articles of incorporation, business licenses and more. Each lender may have slightly different requests so it’s a good idea to get a comprehensive list of documents to keep you organized throughout the process.
The SmartBiz Loans team spoke with over 280 small business owners across America to get their thoughts on key issues they face and how they plan to move forward. A number of topics were addressed including major concerns, hiring, growth plans and financing plans. Securing low-cost financing was top of mind for many entrepreneurs. Take the steps above to improve your chances of loan approval.
For more survey results, check out our infographic:
SmartBiz Loans works with entrepreneurs across the U.S. to help them get the funds they deserve. They’ve helped facilitate over a billion dollars for small businesses and have a deep understanding of what it takes for a business owner to get “loan ready”.