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Follow the 5 simple steps to get a business loan
Getting a business loan can be very daunting. You might start your research from dozens of banks and other alternative lenders who may be competing for your and likewise others attention. Even if you are successful in narrowing down your options you might get confused as this may be your first loan and you do not know where to start from. We have tried to make the process easier for you. Below are five steps explained properly for you to understand and make your process of business loan easy?
The first question that the bank or the lender is going to ask you is for what purpose you need the loan. Business owners may need the working capital for an array of purposes and others may need for specific purpose like to buy certain piece of equipment. Take your time and decide what kind of financing you need as the need will drive you to lender and loan type.
Following are the general reasons for loan like:
The amount of capital for achieving your business need might not match up with what you can afford. If you take too much fund you can be caught in a pile of debt. And if you go for less fund you may be missing the opportunities
Before signing the loan agreement the business calculator will easily tell you monthly payment of your loan. For calculation all you need is the loan interest rate and term. You can even do testing with the amount and see how your monthly payment can change based on the size of the loan. You can even estimate that if the incoming revenue will be able to cover the monthly payment or you may have to reduce little of your loan amount. You should easily be able to cover all your business expenses along with the loan amount interest.
You can use the Debt service coverage ratio (DSCR) to see whether you can afford certain amount of loan. Ideally speaking if DSCR is above 1 it means you have cash on hand to cover the loan payment. If your DSCR is below 1 you need to increase your business income or decrease the monthly expenses.
Your next step should be figuring out which business loan will suit you. The main purpose is to know which type of loan match the credit profile, your budget and the reason you need the funds.
Your option could be:
Almost all type of loans comes with some paperwork requirements during the application process. It is generally not easy to qualify for the loan. Bank requires lots of documents because they closely inspect borrower and approve all who are most qualified. Lots of there is at stake and hence they want to verify all your business as well as personal information approving all the details you submit.
List of documents you need to provide are:
Once you submit your loan application to the bank or financial institute the lender will let you know if they have approved you.
