How To Approach Bank For Business Loan USA 2021?
Small business needs funding to reach the level where they don’t have to depend on a small business loan to run their day-to-day operations. Although approaching a bank for a business loan is a very complex task. You would be shocked to know that banks don’t even provide commercial loans.
The simple reason is banks deal with customer’s deposits and as a customer, I am sure you don’t even like your money being invested in riskier projects. Although there are some exceptions through which one can approach banks for a business loan. There are union credit and private money lenders who can provide small business loans based on your requirements.
Still, if you are looking for government-backed loans with traditional methods then you should know many banks and reputed private lender and union credits works as a partner with SBA ( Small Business Administration ). if you are seeking low-interest loans with flexible and longer repayment terms then you can approach a bank for a business loan.
One can apply for SBA loans via credit unions and private lenders but they might be a bit more expensive than SBA loans for small businesses via banks. SBA reduces the risk of banks and provides several kinds of small business loans to fulfill their different needs until they can stand on their feet.
There are mainly three types of SBA loans that are very popular among small businesses like SBA 7 (a), Microloan, and disaster relief loan or SBA 504. considering today’s COVID-19 pandemic situation. All the small businesses are approaching banks for a business loan to recover from the losses they have faced last year and to start their business with the pandemic protection rule.
Small businesses might approach banks for a business loan for basically three reasons:
- To begin a Startup, they need the seed money
- To get help to cover their losses due to the COVID-19 pandemic, they might approach a bank for a business loan such as SBA 504
- To Expand their business they need huge funding especially the cash flow. For this reason, a small business can approach a bank for a business loan.
Factors To Consider Before Approaching a Bank For Business Loan
Banks are the most reliable and cheaper source to get financial support in comparison to union credits and private money lenders. Therefore, small businesses must approach a bank for a business loan from SBA and if it doesn’t pan out then contact the other SBA partners for a small business loan.
To ensure that your small business loan application doesn’t get rejected due to a lack of knowledge or laziness a business owner must straight down all their affairs and start preparing for the SBA loans via banks. Before you approach a bank for a business loan, one must consider the factors that can cause rejection and prepare the documents to get the small business loan of the desired amount.
We have prepared this list according to the general small business loan requirements while approaching a bank for a business loan and we have also considered the new guidelines for the small business loan process at the time of novel Coronavirus.
- Find The Reason And Amount Of Loan Required
Small business owners must assess their loan needs and the reason for the loan before they approach a bank for a business loan. It is the most expected question from the bank’s loan officers. You must answer clearly and honestly which you can only do that if you know how much loan amount you need for the specific situation.
It seems like a simple question but many small business owners face difficulty in answering them. The borrower must be fully aware of the needs of their business and the loan amount they need.
- Check Your Credit Score
The minimum credit score for a small business loan is already set by the FICO which is 680 points or above. if you are unsure of your credit score then you can check it with the help of major credit reporting agencies.
Whether you are a start-up or want to expand your business you need to make sure that your credit score is above 680. if it is below then you cannot approach a bank for a business loan.
- Vet Your Options
It is not necessary to approach the major banks for a business loan. As a borrower, you must consider all the eligible banks under SBA. To get a small business loan for your business you must approach banks for a business loan and then select your best option to get the SBA loan from a bank.
The method of traditional loans from the bank requires any asset as collateral. If you don’t have a business asset then your small business loan application will get rejected. one must have a hard business asset to offer as collateral. You can even offer your bills receivable account as collateral against the value of the loan amount.
- Prepare The Business Plan
Banks will demand a detailed business plan to start the loan process for the desired amount. They simply need the basics and facts that can help to reduce their risk assessment. Preparing a business plan can be a lengthy and difficult process. Therefore, you need to start in advance and prepare the detailed business plan which includes a standard summary of the company, product, market, team, and financials. You must have a detailed business plan before you approach a bank for business loans.
- Ready All Your Business And Personal Financial Statement
It is a common understanding that banks will need a detailed financial statement of the business account. However, if your small business is just a start-up or age less than 3 years then banks may also demand to see your bank statements in detail. It helps to know your current earnings and total expenses and liability.
You need to make sure that your net worth is more than the expenses including the current loan liability. Before you approach a bank for a business loan you must clear all your poor credit score for both and personal and professional.
- Prepare Your Insurance And Tax Returns
Check all your current and previous insurances and your business tax returns if any. It helps the banks to make a clear decision regarding the small business loan. A clear picture of borrowers’ financial score helps to asses and reduces the risk for the bank and helps them to decide the loan amount they can approve.
- Make a Presentation To Get The Attention
If you want to leave a good impression on the mind of loan officers then you should prepare an attractive business presentation stating briefly your business plan. Also, prepare your small business loan application with the necessary documentation to impress and display your seriousness.
- Paycheck Protection Plan For Covid-19 Applicants
If your small business is also suffering from the COVID-19 pandemic then you can approach a bank for a business loan such as a Paycheck protection plan that will help you stand on your feet. This loan program will provide you the funding for the next 8 weeks to run the business operation, hire back laid-off employees, and for the payment of loan and rent.
The loan amount will be forgiven if the business retaining the full-time headcount and wages and if not they might forgive half or partial loan amount.
- Economic Injury Disaster Loan For Covid-19 Applicants
This loan program is offered by the SBA known as disaster relief fund or SBA 504. one can approach a bank with a business loan for SBA 504 to cover the losses from the COVID-19 pandemic. This loan is fast and comes with a low-interest rate and every small business is eligible for this loan amount.