The world of online lending is vast and intimidating. If you’ve never searched for a loan online, you probably have no idea where to start.
But, that’s okay! If you need a small business loan, and are considering turning to Google to help you find a lender, use the handy guide below to help streamline that search.
Decide how much you need
That’s right; before you even start to look for loan options, you need to stop and think about the loan size you need.
What are you using this loan for? How much do you need to make it happen? Is this number flexible? If a lender offered you more would you take it? If a lender wasn’t able to offer you that full amount, would 50 percent of the amount still get the job done?
Sometimes, businesses don’t qualify for the full amount they want. Make sure you know going in whether or not that will be a deal breaker.
Make sure you can afford it
It’s great to know how much funding you need. But, it’s more important that you’re certain you can afford it. Since you haven’t applied for a loan yet, you have no idea what your interest rates or terms will be. So, this is a question you will have to ask yourself again.
At this moment, you need to take a look at your cash flow and confidently say that you’ll be able to afford a large loan payment each month. If this additional expenditure could really strain your business, it may be best to wait to apply when your cash flow is stronger.
Take a look at your credit report
Your personal credit history is a very important part of the business loan application. It’s best to have an idea of what lenders will see when the verify your credit score and pull your credit report.
You can get a free credit report each year from Annual Credit Report. I recommend pulling it before applying so you can see what your credit score is, and most importantly, make sure that everything on the report is correct. Mistakes on credit reports are actually quite common, and you don’t want an error affecting your credit score.
Compile the information you’ll need
A great way to save time during the loan application is to prepare the documents you think you’ll need beforehand. Or, reach out to your accountant or bookkeeper to do so. All lenders will ask for different documents. Here’s a list of some of the most popular requests:
- Business bank account statements
- Personal and business tax returns
- Balance sheets
- Income statements
- Legal documents (such as articles of incorporation and commercial lease)
Many of these you may have quick access to, but if not, prepare them now so you’ll be ready if lenders ask.
Research, research, and research some more
Well done—you’ve done a lot of preparation that will help you speed through the actual loan application. Now it’s time to figure out where you want to start those loan applications.
You’ll find that when you go and type “business loan” into the search engine, you’ll see a lot of different (and confusing) options.
To start, here are some questions you should ask lenders to help identify who is the best fit for your business:
- Are there any industries you don’t work with?
- Am I able to use the funds for anything? Or only specific purposes?
- What is the minimum credit score you’ll work with?
- Are your loans paid back daily, weekly, or monthly?
- What is your maximum and minimum loan term?
- How long does the process take?
- What is your lowest starting rate?
Asking all of these questions will give you an idea of whether or not this lender can work with a business like yours, and if this lender has the type of loan products you are looking for.
If you don’t want to waste your time going lender to lender to ask these questions, you can try shopping through a business loan marketplace.
Apply, and then compare your options
No matter what, it is always prudent to apply for a few different loan options so you can see where you are going to get the best offer. But, if you are applying for a few different product types, like invoice financing and short-term loans, it might be hard to evaluate off the bat who is giving you a better price.
That is why you need to ask all lenders to calculate their costs into APR. Looking at loan products’ APRs will help you compare them on an apples to apples basis.
It is also important that you ask lenders if they have a pre-payment penalty. Some lenders will charge you a fee if you pay off your loan early. They do this to make sure they recoup their underwriting and administrative costs, as they won’t be earning more on interest. However, many borrowers take on a longer-term loan, assuming they’ll pay it off early. If this is your plan, make sure you can do this without any added costs.
Have you completed the above steps? Well done. You’ve done what it takes to simplify and speed up your business loan search. But, most importantly, you’ve taken the time to carefully identify that this loan is the best course of action for your business, and ensured that you are getting the best deal out there. Just remember, the more prepared you come to the table, the better. This is, without a doubt, the easiest way to streamline your search.
Need help finding a loan? Check out the Bplans small business loan finder.
Meredith Wood is the Editor-in-Chief at Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith is a resident Finance Advisor on American Express OPEN Forum and an avid business writer. Her advice consistently appears on such sites as Yahoo!, Fox Business, Amex OPEN, AllBusiness, and many more.
