Guide on How to Get a Business Loan

The process of applying and getting the approval for business loans is not easy. Even if the business is running for many years, the level of scrutiny that goes into the approval of business loans is extensive. The steps to apply for business loans are- 
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# Plan Well Before the Loan Is Required 

It is very important for the individual who requires a loan to build a relationship with the lender. The individual should let the lender know him well before asking for the loan. It is very important for the people who want loans to understand that people do business with other people if they trust, like, or know them personally well. A lender works in the exact same way. 

# Pinpointing the Reasons Why the Loan Is Required 

A lender can see both the bad and good reasons when individuals apply for business loans. Usually, the good reasons include variances in the large seasons, real estate, software development in the long run, etc. The bad include purchasing assets that are not required, financing losses, or financing build outs in offices. 

# Determining the Right Type of Loan

Usually, a small business does not ask for a big sum of a loan. Underestimating the money leads to many problems in the longer run because the working capital comes down drastically. Moreover, working with such reduced capital results in many problems down the line. Overestimating results in the lenders questioning the validity of the business model used by the individual running the business. If the individual submits a well thought out budget supported by the right kind of cash flows, shows that the individual will be serious with the loan and not squander the money. 

# Determining the Eligibility Criteria 

Every lender will look at the personal credit of the individual who is applying for the loan. It is very important for the individuals applying for the loan to know what the lender will look for while evaluating the eligibility. Some of these factors are- 
  • Credit score: If an individual has a credit score of over 650-700, he/she is eligible for a loan but still the guarantee is not provided.
  • Debt to income: Payments related to personal debt should be less than 33% of the gross monthly income.
  • Time in business: The individual business asking for the business loans should have operated in the market for more than 2 years.
  • Report on industry risk: The risk of the industry under which the business is categorized is ranked based on the SIC codes provided by the government.
  • Report on cash flow: The greater is the operating cash margin, more is the probability of the individual getting the loan sanctioned under his/her name.
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# Finding the Right Kind of Lender 

The individual applying for business loans should conduct a thorough research to understand the type of lenders available in the market. Some of the diverse types of lenders are- 

Commercial banks: This lender is the best for all traditional loans. The loans offered by commercial banks usually fall into the strict parameters discussed earlier. 
Non-bank lenders: This type of lenders is increasing in the market because people are looking for additional ways to increase their income. 
Region-specific lenders: Certain banks are open only for certain communities or regions in a state. 

# Documentation for the Loan Application

The paperwork to be submitted to the lender during the application of business loans. These documents include- 
  • Business plan
  • Resume of the business owner
  • Financial projections and results
  • Personal financial details like IT filing 

Fortunately, the market for lenders has evolved. Many more lenders in the market lend out money in diverse ways. In addition, the cost of loans has become cheaper and people from all walks of life are able to afford a business loan. 
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