Applying for a small business loan can be a confusing task. This article will help you by making you familiar with the loan process. We'll begin by looking at the overview of the process. Then we'll see in detail what each of the steps of the process is like so you can be prepared.
Small business loan process at a glance :-
As per the small business administration, the steps involved in a small business loan approval look like this :-
- The owner of the small business makes a business plan and contacts the lender.
- Owner fills and submits the lender's loan application.
- Lender takes a look on the application, checks the business' credit history and approves the loan.
- Then lender makes the loan documents.
- Once the terms and conditions of the loan authorization are agreed to, the loan is closed.
- The loan proceeds are disbursed depending on the agreed terms and conditions.
- As long as the loan continues, the borrower makes payments as agreed.
- When the loan is fully paid, the liens of collateral are released and the loan is marked as paid.
Just to be clear, these are usually the steps involved in a traditional small business loan from a bank or SBA loans. Depending on the purpose of getting the loan for, you may need to give additional documents.
Also, if you are putting up collateral or giving a personal guarantee, additional steps will be involved. So, this is how your business loan process will go.
Business plan and application review :-
Along the traditional term loan, business lender will ask you to submit your business plan and loan application. While loan applications may differ from lender to lender, you'll basically be asked for personal and financial information. It may include :-
- Contact details.
- Social security number.
- Nature of business.
- Structure of business.
You may also be asked for financial information such as your profit and loss statements, tax returns, etc.
Loan documentation and disbursement :-
Once your loan application is approved, your lender will make a package of loan documents. That package will be your loan agreement.
While different types of loans may require different documents, the loan agreement basically displays the terms of your loan. Your agreement will contain information about basic loan costs, when and how the loan will be repaid, and any additional terms and conditions.
Once you and the lender sign these documents, the next step will be for the lender to give you the funds. The amount and the time to release the funds depends on what's stated in the loan agreement.
Repaying the small business loan :-
After you've received the loan amount, the next step will be the repayment of loan. The amount and timing of your payments will be stated in the loan agreement.
Usually, you have to repay your loan in periodic payments. These periodic payments will contain principal and interest.
You may be allowed to make larger payments than required to pay the loan early. However, some lenders may take fees for early payment.
Once the repayments are completed, the lender will remove any liens from your collateral. When the liens are removed, the lender can't claim against you. Then, to mark the end of your loan agreement, the lender will mark your note as paid.
Conclusion :-
It's totally normal to feel overwhelmed by the small business loan process. By familiarizing yourself with the process, you can easily apply for loans. Just be prepared for different tantrums in individual online lenders' loan approval processes.
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