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August 12, 2021

How to Navigate the Business Loan Process

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FF

Fora Financial

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To efficiently navigate the term loan shopping, application, closing, and funding processes, it helps to understand:
  1. Different business loan types and lenders and their terms and conditions
  2. Typical documentation requirements and eligibility criteria
  3. Expected timelines for approval and funding
  4. Common costs and fees to look out for
In this blog post, you’ll learn about each of these aspects of the loan process. Just keep in mind that, while we’ll explain what you can generally expect, some lenders will have slightly different processes.

How to Shop for a Business Loan

Before you apply for a business loan, it’s important to figure out exactly what you’re shopping for. Business loans can vary considerably, from multi-million dollar, long-term commercial loans to one-year microloans. Repayment schedules vary too, which will impact your cash flow. Therefore, rather than jumping right into sifting through different loans, start with your needs and constraints. Ask yourself:
  1. How much of a daily or monthly payment can I afford?
  2. What total amount of financing do I need?
  3. How long can I wait to get approved for business financing and will waiting hurt my operations?
Knowing the answer to these questions before you shop for a loan is like knowing your pants size before shopping for clothes. It doesn’t mean every business loan will be right for you, but it will help you narrow your options. For example, if you know you need funds within 30 days, you can rule out traditional business loans from a bank. Even if you have a relationship with your bank, it’s likely to be impossible to get a loan funded in 30 days. Another thing to consider is the lenders themselves. Their customer service and industry expertise will have a big impact on how seamless (or not) your experience is. Not only that, ideally, you want to find a lender that you can build a long-term relationship with.

Business Loan Application: Documentation and Eligibility

No one likes paperwork, but there’s no way around it in the business loan application process. While certain types of loans require more than others, all business loans require at least some documentation. If you don’t complete all required documentation, you’re unlikely to receive the funding you’re seeking. Therefore, gathering and organizing your financial information is critical. Here’s a list of financial statements and documents you’ll likely need to provide when you apply for a loan:
  1. Personal credit reports
  2. Business credit report
  3. Bank statements
  4. Tax returns
  5. Income statement
  6. Balance sheet
  7. Budget and future cash flow projections
  8. Business plan
To learn more about loan documentation, read our post on the 6 business loan documents needed for a loan application. New call-to-action The reason lenders need these documents is to determine your eligibility. Generally speaking, eligibility hinges on:
  1. Your personal and business credit score
  2. How much money your business generates
  3. Your debt-to-income (DTI) ratio
  4. Whether or not you have valuable collateral
  5. Your business’s track record
As a rule of thumb, online and other non-traditional lenders tend to have less extensive documentation and eligibility requirements. Also, non-traditional lenders are typically quicker to process your application. So, if speed is your priority, you’ll want to avoid traditional lenders like banks or credit unions. Similarly, non-traditional loan officers tend to have less stringent eligibility criteria. For example, to get approved at a bank, you’ll need an excellent credit score of at least 800. However, at an alternative lender, your application may still be approved even if your credit score is around 670 or higher.

Loan Timelines and Cost

It’s hard to say exactly how long it will take to get your loan application approved and funded. Loan approval and funding timelines depend on the type of loan, the completeness of your paperwork, and your lender. For example, SBA loan application and funding timelines can range from a few weeks to months. SBA Express Loan applications may be approved in 36 hours, though funding depends on your lender. Many alternative lenders offer approval and funding times as short as 72 hours. However, to get a precise sense of time and cost, you’ll need to engage your lender during the application process. At that time, they should be able to tell you how long it will take to get your loan approved and funded. Additionally, assuming your loan application is approved, you’ll receive a loan offer that details important costs and terms. At that point, you’ll want to make sure you understand all the fees and financing terms. So before you sign anything, ask your lender for any necessary clarification. It also may help to read these two blog posts on common loan fees and financing terms:

Research and Preparation are Key

If you want to seamlessly navigate the business loan process and get the funding you need at a competitive price, nothing replaces research and preparation. To make sure you hit all the steps outlined above, copy and paste this checklist into your own document:
  • Determine the maximum loan payment you can afford
  • Calculate the total amount of financing you need
  • Find out when you need funds
  • Consider what types of loans fit your needs
  • Decide which type of lender best fits your needs
  • Compile the paperwork needed for your loan application(s)
  • Ask prospective lenders for application approval and funding timelines
  • Review and compare loan offers based on costs, timing, terms, and fees
If you need additional guidance specific to your loan application, grab our Small Business Loan Application Checklist.