Small and Medium Businesses (SMB) are the backbone of the economy. According to the US Small Business Administration, SMBs account for 99.9% of all companies in the country and are responsible for 47.5% of jobs with over 1.9 million new ones a year.
This is why there are financial programs specialized in small business loans, that help business owners grow and expand their business and, thus, the economy. Even though words like “credit” or “loan” may have a bad reputation, the truth is that they are very good alternatives for financing certain small businesses activities.
If you are in need of funding or you want to increase your financial education, Camino Financial is here for you. We can help you understand everything you need to know about small business loans, and in this article, we’ll tell you how to increase your chances of obtaining one.
I want a Small Business Loan
The first thing you need to do is ask yourself if you really need the money and how would you use it. This will be essential to plan your small business loan application. Some of the questions you should ask yourself are:
- Where is my company now?
- Where do I want it to be in the future?
- What do I need to do to make that happen?
- How much money do I need to get to make that happen?
- Will I be able to pay it back?
Work on a business plan that shapes your idea, study your target market and find the best way to conquer it. Keep in mind that what you write isn’t set in stone, you have to be flexible so you can redirect your efforts if things don’t go as planned. This document will be the foundation of your application and a way to make the most of the money you’ll get.
What do I Need to Do to Get a Small Business Loan?
Every financial institution has its own rules, its own requirements and its own process. Yet, there are common factors that a lot of those companies agree on and you’ll need them to start the process:
- Tax ID
- Proof of personal or business residence
- Personal and commercial references
- Tax return
- Guarantee or loan co-signer
- A professional plan to invest the money in the company
Once you have all these documents ready, make some online research and investigate the financial institution that best suits your needs. This process is known as due diligence and it’s important that you perform it before you go knocking on doors.
Think about it: the same way a financial institution will look into your credit history, you should know how serious the firm is and even if it is a regulated one. This will save you a lot of trouble in case you need to take your case in front of the authorities.
Take note on other best practices to become a good loan prospect:
- Have a solid idea of what you need the money for.
- Only ask for the money you need. Don’t ask for more or less than that.
- Make sure that the amount you need does not exceed 30% of your operating profit.
- Remember that you’ll need to pay off the debt regularly, so share a plan payment with your financial prospecting.
- Check your credit score. In case you are co-signing a loan, check your partner’s as well.
- Check the interest rates and compare them with other financial products.
- Crunch numbers over and over again to make sure the loan it’s a good deal for your company.
Compare between different small business loans and don’t go signing up with anyone. Choose the one that best meets your needs.
Did you know that Camino Financial not only helps you understand how loans work but also has different loans for our business? Visit our website to learn more about how we can help your business grow.