The Small Business Loan Process at a Glance
According to the Small Business Administration, the typical steps involved in a small business loan approval flow like this:
1. Small business owner prepares a business plan and meet with the lender.
2. Owner completes and submits the lender's loan application.
3.Lender reviews the application, reviews the business's credit history, and approves the loan.
4. Lender prepares loan documents.
5. Once any terms and conditions of the loan authorization are satisfied, the loan is closed.
6.The loan proceeds are disbursed based on agreed-upon terms and conditions.
7. Throughout the life of the loan, the borrower makes payments as agreed.
8. When the loan is paid back in full, the collateral liens are released, and the note is marked as paid.
To be clear, these are the steps usually involved with a traditional small business loan from a bank or SBA loan. Depending on what you're getting the loan for, you may need to provide additional documentation. Other financial institutions
Also, if you're putting up collateral or providing a personal guarantee, additional steps will be taken. However, generally speaking, this is how your business loan process will go.
In the next few sections, we'll explore these business loan steps in more detail:
Steps #1- #3: Business Plan and Application Review
With a traditional term loan, business lenders will require that you submit a business plan and loan application.
While loan applications differ from lender to lender, you'll generally be asked for personal and financial information. This could include:
* Your contact details
* Social security number
*The nature of your business
* Your business structure.
You'll also be asked for financial statements such as your profit and loss statements, tax returns, and more.
With this application, as mentioned, you'll also be asked to submit your business plan. The idea behind the business plan is to help the financial lender determine the viability of your business. At a minimum, your business plan must:
1. Provide background on the business and yourself.
2. Describe the experience of your management team.
3. Summarize your business's current activity and results.
4. Identify and explain your industry, your customers, and your market.
5. State how much money you need, how you determined how much you need, and what the loan will be used for.
Once you've submitted all this information, your lender will decide whether or not to approve your business loan application.
Keep in mind that other people may also be required to submit an application depending on the lender and your business structure. For example, if your business is structured as a partnership, your other partners may also be required to fill out an application.
Steps #4 - #6 Loan Documentation and Disbursement
Once your loan is approved, and underwriting is complete, your lender will assemble a package of loan documents. This package is your loan agreement.
While different types of loans require different documents, the loan agreement essentially lays out the terms of your loan. Your agreement will include various loan costs, how and when the loan is repaired, and any additional terms and conditions.
Once you and the lender sign these documents, the next step is for the lender to release the funds; in What amount and when the lender releases these funds depends on what's stated in your loan agreement.
Conclusion: Take Time to Prepare for the Small Business Loan Process
It's completely normal-perhaps even expected to feel overwhelmed by the small business loan process. Fortunately, by familiarizing yourself with the process, you can quickly overcome that feeling.
Just remember to be prepared for the different nuances in individual online lender's loan approval processes.
Also, keep in mind that the process we've outlined above applies to traditional term loans. Other types of financing, such as merchant cash advances, equipment financing, or business lines of credit, follow slightly different processes.
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