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 line of commercial insurance products. Progressive is a Fortune 100 company and thousands of small business owners trust it to protect their livelihoods.
Running a small business presents financial challenges at the best of times, but these problems are magnified during a pandemic. According to the Federal Reserve’s 2021 Small Business Credit Survey, 80% of businesses have experienced financial difficulty in the past 12 months. This is a significant increase from 2019, when only 66% of companies experienced financial difficulties.
While 62 percent of these business owners drew on their personal funds to cover costs, others sought funding through loans and grants. Whether you want to rebuild your finances after the COVID-19 pandemic or just want to launch 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 suggests these steps to understand the application process.
Gather your financial information. Banks and other creditors will determine the terms of your loan based on your current finances. The higher your credit and income, the better your terms will be. When shopping for different loan providers, they will all ask you for the same information, so you can save time by putting this information together and keeping it handy.
Here are some documents to keep handy during the loan application process:
- Cash flow. Lenders want to know that you can pay them back. Make copies of your bank statements and any documents that provide proof of income. If you currently own a business, you will likely need to share your most recent Balance Sheets and P&L (P&L) to show that your business is profitable.
- Time in business. Most lenders will only lend to businesses that have been in operation for more than a year. Gather documents for your licenses and LLC state registration to show how long you’ve been in business. You can also use your tax returns for this.
- Collateral. If you plan to borrow against your assets, you will need documents proving their value. For example, you may need to submit sales documents for a fleet vehicle if you want to use it as collateral. If you cannot make the payments, the lender may be able to seize these assets.
- Different lenders may request specific documents related to your business during the loan process. Use this list as a starting point to start the discussion about the loan.
Shop around for lenders. When your documents are ready, you can start meeting with lenders about potential business loans. Your job is to evaluate different financial institutions to see which one offers the best loan option for your needs. Here are a few places to look:
- The Small Business Administration (SBA). This is the federal lending arm of the US government. They offer emergency response loans, equipment loans and microloans under $ 50,000.
- Your current bank. Some banks and credit unions offer better interest rates to existing customers. You may be able to save money by applying for a loan from them.
- Competing banks. Even with a reduced interest rate, your bank might not offer the best deal. Evaluate the loan terms of two or three other institutions to compare them.
- Online lenders. Consider national lenders who support small businesses. Your best loan rates can even be found online.
Keep the application process moving. Each lender has different requirements for loan approval and different speeds for the underwriting process. Once you’ve chosen the best lender for your needs, it’s time to begin the application process – just filling out the application doesn’t mean you’re almost there.
It often takes weeks or more for an application to be completed and approved. For example, an SBA loan can take 60 to 90 days to be approved for funding. As with every step of the loan process, ask for details of this timeline right from the start. This ensures that you can follow the schedule and appropriately plan the use of your loan.
One easy way to speed up the application process is to listen to your lenders. When requesting additional documents, provide them as quickly as possible. Even waiting a few days to respond can push back your deadline for receiving the loan.
Dean Swanson is a Certified SCORE Volunteer Mentor and Past SCORE Section President, District Director and Regional Vice President for the Northwest Region.