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How to apply for a small business loan

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Small business loans are often a necessary part of business growth and development. In order to succeed, cash flow is needed, and sometimes that means getting financing. In order to apply for a small business loan guaranteed by the SBA, you have to meet eligibility requirements, fill out the proper applications, and apply to SBA partnered lenders. Here are some of the things you will need in your loan package:

A business plan. This should be carefully prepared, with ample time spent on it to make sure that it is informative, and provides the lender with a clear picture of who your business is, what they do, the market condition, your competitive advantages, experience, competitors, etc. Basically your business plan should be a complete, yet succinct description of your industry, yourself, and your top competitors. You can’t assume that the lender knows anything, instead you have to show them clearly in your business plan how you are prepared to handle the industry you are part of.

Next, you have to have cash flow projections. In order for the SBA to back a loan, they want to make sure you have a clear idea of how you will be able to meet current and future financial obligations. You show them by creating a pro forma or clear projection of where your finances will be over the next few years, and why you believe that to be the case.

You have to provide the lender with personal financial statements and business financial statements so that they can see your current financial position. They will use these statements as well as other information provided to determine how well you will manage money lent to you, if you really need it, and if you will be able to pay it back, all important considerations before lending.

You will need to provide business tax returns, where you provide two years of past income tax returns for your business. The hope is to show you exist and have existed for the past two years, and that one of those years, at least, was profitable.

Next you will need to provide a credit report. They will usually pull your credit, but you will want to look it over before they do so to correct any mistakes that might be there.

You will want to provide some kind of collateral, as secured loans are more likely to get approval than unsecured loans. You will want to provide the lender with something of value to lessen the risk of lending to you. You will need to show you have earnings over $100,000 a year if you want to get an unsecured loan, and that you have been in business for the past two years.

SBA loans usually require some kind of personal contribution, such as 10% equity. You will want to indicate how much personal contribution you will make, and show proof of funds.

You will need to specify how much you want to borrow, what you plan to use it for, and for how long you want to borrow it. With an SBA loan, this would be SBA form 4-a.

Lenders may want additional documents like lease agreements, etc. and will request them on an application by application basis.

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Posted by DK
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