When starting a new business, it’s necessary to consider all possible expenses and assess the current financial situation. Many startuppers prefer not to risk and apply for a small business loan for a successful start as well as covering day-to-day expenses which include inventory and payroll.
However, sometimes getting approved for such type of loan can be difficult. The most thing you need to do before applying for it is to be ready to take the following steps.
1. Choose the purpose of the loan
In general, most lenders will ask you why you need this kind of loan. Thus, you should be prepared to answer the question according to possible options:
“I need it to start my business / obtain a safety cushion / cover day-to-day expenses.”
2. Assess your qualification
Before applying for a loan, you should ask yourself the following questions:
– What is my credit score?
The answer will help you to understand which loans you’ll qualify for. Get your credit report from three major credit bureaus (Experian, Equifax, TransUnion) or different credit card issuers.
– How long have I been in business?
If your company doesn’t have a long history (more than a year), then probably, you’ll be refused to get a small-business loan from such places, as banks. Startups are usually disqualified from financing at once, as they can’t provide cash flow and, thus, support repayment of the loan.
But there’s no room to worry. You still have some options to get instant financing for your startup.
– Do I make enough money?
All the types of lenders (even online lenders) will require a minimum annual income. That’s why it’s necessary to know yours and make sure it fits the minimum required by the chosen lender.
– Can I make the payments?
Before making the final decision, you should assess your business’s cash flow and determine how much you can afford and allocate to monthly or daily loan repayments.
3. Find the best type of lender
There are several places you can get a small-business loan: banks, non-profit microlenders, and online lenders. Each type of lender has its own terms, APR-s, and requirements.
Banks
As mentioned above, banks shouldn’t be considered as an option for getting a loan for a startup. It’s better to use banks in case if you can provide collateral, you don’t need cash fast, and you already have good credit.
The other two options better fit your needs as they’re an excellent alternative to a traditional loan.
Microlenders
Non-profit microlenders typically lend short-term loans of less than $35.000. They have a higher APR and require a well-detailed business plan and financial statements. In addition, microlenders may ask you to provide a description of what this business loan will be used for.
The top US microlenders include such institutions as Grameen America, LiftFund, Accion New Mexico, and Justine Petersen.
Online Lenders
The most appropriate option to get a small business loan for your startup is to apply for the online loans no credit check and get it as fast as 24 working hours. It’s the best solution in case if you lack collateral and time in business, and of course, if you need funding as soon as possible.
The average APR on payday loans from online lenders ranges from 7% to 108%. It depends on the chosen lender, the loan amount, and the borrower’s credit history.
One of the most popular American lending companies is PaydayAllDay. The main benefit of the service is the availability to apply for a loan with bad credit and no collateral. The financial organization is a part of the market since 2006 and has already helped a lot of small businesses all over the United States to get the necessary loan amounts.
Besides same day payday loans, the company offers such cash advance options as instant payday loans, no credit check loans, fast cash loans, 1-hour cash, and lines of credit.
4. Prepare the documentation
After successful completion of all three previous steps, you’re finally ready to apply for a small-business loan that best fits your financial needs.
The combination of possibly required documents may slightly vary, but the basic documents remain intact:
- Personal and business tax returns;
- Personal and business bank statements;
- Financial statements of your business;
- Legal documents of your business.
Bottom Line
Undoubtedly, starting a new business or running the existing one is expensive and difficult. At the same time, obtaining the appropriate business loan for your startup is complicated as well. Nevertheless, it’s possible.
The point is not to be afraid of alternative lending options as sometimes non-profit lenders may become the right choice for you and your startup. Keep in mind it’s necessary to do some research before applying for a loan, be realistic with your ability to repay it, and of course, have the right motivation for starting your own business. These actions will help you to go through the period and watch your startup swiftly growing day by day.
