I’ll share some ideas from one of SCORE’s content partners, Progressive Commercial Insurance. With over 50 years of experience, Progressive Commercial Insurance offers a full range of business insurance products. Progressive is a Fortune 100 company that thousands of small business owners have trusted for their lives.
Running a small business is fraught with financial problems at the best of times, but these problems are exacerbated during a pandemic. According to the Federal Reserve’s 2021 Small Business Lending Survey, 80 percent of companies have experienced financial problems in the past 12 months. This is a significant increase from 2019, when only 66 percent of firms were in financial trouble.
While 62 percent of these business owners used their personal funds to cover their expenses, others sought funding through loans and grants. Whether you’re looking to rebuild your finances after the COVID-19 pandemic, or just want to pursue your new idea, a business loan can give you the working capital you need.
If you want or need to apply for a business loan, Progressive offers the following steps to understand the application process.
Collect your financial information. Banks and other lenders will determine the terms of your loan based on your current finances. The better your credit and the higher your income, the better the conditions will be. When you choose different lenders, they all ask for the same information, so you can save time by collecting this information and keeping it close at hand.
Here are a few documents to keep handy when applying for a loan:
- Cash flow. Lenders want to know that you can pay them back. Receive copies of your bank statements and any proof of income. If you currently own a business, you will likely need to share your most recent balance sheets and income statements (P&L) to show that your business is profitable.
- Time in business. Most lenders only lend to companies that have been open for more than a year. Collect documents for your licenses and state registration of the LLC to show how long you have been in business. You can also use your tax return for this.
- Pledge. If you plan to borrow against your assets, you will need documents proving their value. For example, you may need to provide documents for the sale of a vehicle in the park if you want to use it as collateral. If you are unable to make payments, the lender can confiscate these assets.
- Various lenders may request certain documents related to your business during the loan process. Use this list as a starting point to start your loan discussion.
Take a closer look at your creditors. When you have the paperwork ready, you can start meeting with lenders about potential business loans. Your task is to evaluate various financial institutions to determine which one provides the best loan option for your needs. Here are some places to watch:
- Small Business Administration (SBA). It is the federal lending arm of the US government. They offer emergency loans, equipment loans, and microloans of less than $ 50,000.
- Your current bank. Some banks and credit unions offer better interest rates to existing clients. You may be able to save money by contacting them for a loan.
- Competing banks. Even with a lower interest rate, your bank may not offer the best deal. Evaluate the terms of the loan at two or three other institutions for comparison.
- Online lenders. Consider national lenders supporting small businesses. Your best loan rates can even be found online.
Continue the application process. Each lender has different loan approval requirements and a different speed of the underwriting process. Once you’ve selected the best lender for your needs, it’s time to start the application process – just filling out the application doesn’t mean you’re nearly there.
It often takes weeks, if not more, to complete and approve an application. For example, it can take 60 to 90 days for an SBA loan to get approved for funding. As with every step of the loan process, ask ahead of time to clarify this schedule. This will ensure that you can keep track of the time frame and plan the use of the loan accordingly.
An easy way to speed up the application process is to be considerate of your creditors. When they ask for additional documents, provide them as quickly as possible. Even waiting for a response for several days can delay the deadline for obtaining a loan.
Dean Swanson is a Volunteer, SCORE Certified Mentor, Former Chair of the SCORE Division, District Director and Regional Vice President for the Northwest Region.