Business Loans | How to Get Approved in 5 Simple Steps!

do you need a loan to get your business up and running well you're not alone about 43 of small businesses apply for a loan last year and of those 66 were actually approved in today's video i'll break down the necessary steps to increase your chances of getting approved for business loan and start that business you've been dreaming about [Music] crystal here cpa at life accounting and if you're ready for me to dive into this video please do me a favor and give it a thumbs up thank you for that now let's get started with step number one which is to evaluate your credit at the end of the day lenders will make the decision to loan or not loan to you based on your credit profile as i'm sure most of you know there's personal credit and then there's business credit but when just starting out you have a little to no business credit with that in mind lenders will look at your personal credit and specifically your outstanding loans and your credit report in conjunction with your personal credit they will also review the financial standing of your business including financial statements business assets how long you've been operating and if you have any outside investors now i know what you might be thinking but crystal i'm just starting out and i don't have any of these things and i also don't have perfect credit either don't worry i have you covered starting first with your credit the key here is moving away from personal credit and starting to develop and build your business credit business credit is very similar to personal credit and it's the ability of your business to qualify for financing to build your business credit the very first thing you need to do is register your business with the state i know a lot of people start off as sole proprietors or general partnerships in which case they are not considered separate from their business and therefore no business credit can be established instead in order to build your business credit and increase your chances of getting a business loan you need to file the formal paperwork to legally establish your business this can be in the form of incorporating or forming an llc once you do this you need to get an ein number or employer identification number this is 100 free on irs.gov your business ein acts like the social security number for your business hey while you're at it go ahead and apply for your duns and brad street number or your duns number and you can do this at dmb.com duns and brass street is one of the top credit business bureaus and getting a duns number is critical in establishing and building your business credit once you register your business and have an ein you can now open a business checking account which will help you further in building your business credit by creating a clear separation between your personal and business transactions a lot of times lenders will request to see three or six months of bank statements as a way to determine how funded your business is at any given time so once your business account is open start using it for all of your business transactions there should always be a positive balance and some activity every single month in your business bank account also make sure to set up a business phone number business email address and a professional website that is separate from your personal information lenders will perform due diligence to see how reputable your business is if you have all of these things established then you're well on your way you'd be surprised to learn how many businesses actually don't have an ein or a bank account or even a professional email address remember we're trying to establish that you are separate from your business and that your business is legitimate on paper step number two in getting approved for a business loan is to make sure that you have your financial statements in order the most important financial statements are going to be your balance sheet profit and loss statement and your cash flow statement lenders are going to analyze these statements in detail so you want to make sure that your numbers are correct and complete some lenders would prefer that your financial statements are audited by a cpa but this can be costly for newer businesses as an alternative you can instead have your financial statements reviewed by a cpa which is a much more affordable option if you don't have financial statements or have a limited operating history you'll need to develop financial projections financial projections are a forecast of future revenues and expenses typically the projection will take into account external market factors so you'll need to have a really good understanding of your business and the industry that you're in you should develop both short and long term projections as well your short term projections should focus on your first year of business and your long-term projections should account for the next three to five years of business also be sure to include charts and graphs to better illustrate your financial projections if your numbers are easy to understand and follow the better chance you have in getting approval for a business loan you could hire a professional to do this for you or there are plenty of free online templates to help you prepare projections step 3 is to determine how much funding you need to borrow and how you expect to use the funds every lender will want to know how much you are seeking to borrow and how you intend to spend the funds is it for inventory hiring employees marketing efforts research and development and so on make sure to do thorough research in determining how much of a loan you need requesting too little could lead to financial issues in the future like running out of cash before you could complete your goal or requesting too much can make the lender question your business all together and if you did the proper research on your industry creating your financial projections or even a budget will help you be clear on how much you'll need step number four in getting approved for a business loan is assessing the value of your collateral business collateral are assets that can be seized and sold by the lender if you don't make your payments at the end of the day a lender wants to make sure that they can get their money back so if you have collateral to show you are way more likely to get approved for a business loan collateral can be equipment inventory real estate among other things some lenders may not require collateral but may want a personal guarantee which essentially puts your personal assets and credit score on the hook in case you default on the loan if you don't have any collateral and unsecured business loan may be a better option for you which brings me to my final step number five and that's to research loan types and pick the right lender the most common loan types are sba loans which is a government agency that partners with banks to guarantee a portion of your business loan there's bank loans these are offered by banking institutions with repayment periods ranging from six months to three years or more there's equipment loans these are loans solely for equipment or machinery these loans use the equipment purchase itself as collateral similar to a car loan these loans are available at some banks as well there's business line of credits which is similar to a regular credit card as you repay the loan the funds become available again to borrow and there's also micro loans which are loans generally up to fifty thousand dollars these are typically not offered at banks but instead by non-profit organizations or alternative lenders once you figure out which loan type is best for you research lenders there are so many lenders not just large banking institutions willing to lend to small businesses and the majority of them can be found easily online here are some things to consider when deciding on a lender there's interest rates how much collateral if any do you have to put up for the loan how long do you have to pay back the loan are there any additional fees are there any penalties how long will it take for you to get funded now here are some general guidelines when deciding between lenders get a business loan from a bank if you're not new to business and have been in operation for at least two years you don't need any cash right away and you have good credit get a business loan from an online lender if you're new to business you don't have any collateral and need funding quickly get a business loan from a micro lender if you're new to business you have a bad or no credit history or you can't get a traditional loan once you're clear on the type of loan and lender that is best for you apply for that loan as soon as possible applying for a business loan and getting approval can sometimes take months every loan and lender is different but in general if you complete the first four steps mentioned in this video you are already 90 on your way to getting approved for business loan something else i want you to think about is assessing if a business loan is what you need right now here are some good reasons to get a business loan well for one if you're using it to grow your business using a loan to expand your business is helpful in the long run since ultimately you would be increasing your sales and cash flow by having a bigger business or you're using the loan to buy long-term business assets tying up cash to buy equipment or real estate may have you in a cash deficit but if you're using a loan to buy these assets it can actually be a better setup for you as long as those assets are a good investment or to temporarily improve cash flow perhaps you're a seasonal business with predictable downfalls then a line of credit could actually help you meet your working capital needs it may not be a good idea to get a business loan if your business has constant cash flow problems a business loan will not improve a continual decline in business you would need to re-evaluate what your business is doing wrong from an operational standpoint or you've already maxed out your lines of credits getting more loans will only negatively impact your business credit and you're less likely to get approved anyway it's better to focus on paying down your existing debt before taking on more debt or you can't find any loan terms that suit your needs there's no need in hastily getting into financial trouble over loan terms that don't serve you take a pause and work on your credit and re-evaluate your loan options in a few months there you have it i hope this video was informative and helpful for you if it was please let me know in the comments and subscribe to our channel so you don't miss out on future videos in the meantime feel free to check out some of our other videos and i'll see you in the next one

Channel: LYFE Accounting

Views: 50,131

Keywords: business loan, business loans, bank loan, how to get a business loan, how to get approved for a business loan

Id: -8HU5IPLto8

Length: 11min 27sec (687 seconds)

Published: Tue Jun 29 2021