Having a business loan can help your company expand. This could be a physical expansion, like buying more branches or hiring more staff, or this could be through the internet as you invest in creating a website that helps your business function online.
Whatever you want a business loan for, it can be hard to wrap your head around the application process, and you don’t want to apply just to be rejected and have your dreams crushed.
Well, don’t fear! Strap in tight as I walk you through how to get a $100,000 business loan!
Step 1 - Do you qualify for a 100k Business Loan?
To answer this question you need to know 4 things about your business. One - what’s your credit score. Two - How long has the business been running. Three - How much money does the business make. Four - Can you afford the repayments of the loan?
If you don’t know your credit score, you can use credit bureaus like Equifax, Experian, and TransUnion. They all have free and paid for content, and they can show you what your current credit score is.
If you pay for the services, they can even tell you how to make your credit score better. You will need a credit score of at least 680 to get that $100K loan anything less and the lenders will see a company that isn’t able to pay them back.
Your business doesn’t have to be that old to apply for a business loan either, but it does need to have run for at least two years. This is so that banks can see your trajectory and weigh up your likelihood of paying them back. Remember that that is their end goal.
When it comes to how much money your business makes the answer should really be $50,000 or higher. Most lenders will have a minimum annual revenue, so figure out yours before you head to a lender. They might accept less than $50,000, but keep that figure in mind.
Lastly, can you afford the repayments? To be able to pay back the lender comfortably without stretching your wallet too thin, your total monthly income should be at least 1.25 times your total monthly expenses.
That figure should include the monthly repayments for this new loan too. So, if your company makes $5,000 a month and your expenses for rent, wages, and such are $3,000, then you can afford a loan of $1,000.
This is because $5K is 1.25 times $4K. Knowing your own details, figure out how much you can afford to pay back each month.
Now you know what the lenders are going to ask you, make sure you get these answers ready!
Step 2 - Getting your Papers in Order
Whenever you start on a new business venture you need to make sure that all the paperwork and documentation is easily accessible. When it comes to getting a business loan, the idea is exactly the same.
The lender might specifically ask for something from you, but normally the documents that they will want to look at are:
- Business Tax Returns
- Person Tax Returns
- Business Bank Statements
- Person Bank Statement
- Business Financial Statements
- Business Legal Documents (Rent, Franchise Agreements, Shareholders, etc)
- Business Plan
The tax returns and bank statements might seem like an obvious request, whereas the business plan might have thrown you off a bit. The lender will want to know what you plan to do with the money, so they can decide if your plan will work or if it is too risky.
You need to remember that you are selling your business idea. You want to be seen as in demand and doing well, that way even if your business is in a niche market, the lenders will see the figures and therefore see the promise your business has.
Step 3 - Finding The Right Lender
When it comes to finding the right lender, you should really be focusing on their APR rate. APR is the annual percentage rate, and it is all about how much you have to pay for a year of borrowing.
You want the APR rate to be as low as possible, but being that low often means having a shorter time to pay it back.
Depending on which lenders you have found, they might allow you to take longer to pay back the loan, but for a higher APR, or they might demand that you pay it back quickly, and so give you a small APR to compensate.
You need to figure out what balance makes sense to you. There is no point in having a 3 month loan if you can’t afford to pay back big chunks of money. This is when the calculation you made about repayments comes in.
Using the calculation you made, narrow down your search by giving the lenders the max figure you can realistically pay. The lender will then adjust the APR and term to suit that figure.
Step 5 - Applying For a $100K Loan
Now you have collected all your papers, you have all the information ready for the lenders’ questions, and you have found a lender that you think will be most beneficial to you, it’s time to apply for the loan.
You have to remember that credit bureaus don’t separate personal inquiries from business inquiries. So if you are using a credit bureau like Experian to apply for a loan, then you need to be sure that they are likely to accept you.
Otherwise, the rejection will show on your credit score. The bureau will tell you what they think the likelihood of acceptance is, so use them as guidance!
How Hard Is It To Get A 100k Business Loan?
If you are a small business, then there are few factors that might make getting that $100K loan difficult. If you’ve read the above you should be able to bypass a lot of the problems with getting the loan.
Normally bad credit scores and a lack of a business plan are the main reasons for failure, but there are a couple of other factors that might make this journey a rough one for you. Once you smoothen these out, then the loan process won’t be as hard!
Is your Cash Flow Limited?
“Cash flow” is how much cash you can get easily to pay back your loan, and it's one of the first things a lender will look into.
If it takes a while for payment to reach you, or if you have your money tied up in property or other static areas, then this might be hindering your chances of a loan.
You should be calculating your cash flow quarterly, but if you’re not sure how to do this, then you should hire a financial planner a couple of times a year to help you navigate through your finances. Knowing your cash flow in advance is an easy way to get in your lender’s good books.
Have You Applied For Too Many Loans?
You might think that your best bet is to apply to everyone and see who says yes, but your application record can be seen by every lender.
If a lender sees that you have applied to a bunch of different people, they won’t see that interaction as you using a net to up your chances of grabbing a fish.
All that the lenders will see is a red flag. In the lender’s eyes, your multiple applications means that you need multiple $100K loans.
If you need that many loans then won’t be able to pay them back (which the lenders know because they can see your documentation you’ve given them), and so they will reject your application.
This is a common and avoidable problem. You want to make yourself look as stable, financially viable, and as knowledgeable as possible. Avoid these errors and getting that loan won’t be as hard.