There are six main steps to getting a business loan in North Dakota:
1. Learn what lenders look for.
2. Decide what type of financing you need.
3. Find out how to get approved.
4. Gather documentation.
5. Find a lender.
6. Fill out the application.
This article explores what it takes to get a business loan in the Peace Garden State and how Nav can help.
1. Learn What Lenders Look for in Applicants
For small business owners in North Dakota, securing funding is a critical aspect of growing and expanding their operations. However, applying for a small business loan can be daunting, especially if you’re unsure of what lenders are looking for. To increase your chances of approval and avoid wasting time on applications that are unlikely to be approved, it’s important to understand the key factors that lenders evaluate when considering loan applications.
Lenders are primarily concerned with making profits, which means they want to be sure that borrowers can pay back their loans. As a result, revenue or cash flow is a critical factor that lenders will consider when evaluating your application. If your business has strong revenue, you’ll be more likely to secure financing. Lenders will usually want to review your financial statements and bank statements to get a sense of your financial situation.
Time in business
Lenders also consider how long your business has been operating. Traditional lenders like banks and credit unions will typically require at least two years of successful operation before they will approve a loan. However, online lenders may require only one year of operation, and sometimes six months. If you’re an idea-stage startup with no revenue, it may be difficult to qualify for a traditional term loan or line of credit, but you may be able to secure a business credit card or crowdfunding.
Personal credit score
Your personal credit score is another factor that lenders will consider. Younger businesses or those without significant revenues may be evaluated primarily on the personal credit score of the business owner or owners. A higher personal credit score can increase your chances of securing a loan and may provide you with more options. Therefore, it’s important to ensure that your personal credit profile is in good standing before applying for a small business loan.
Business credit score
In addition to your personal credit score, some lenders may also check your business credit score. A positive payment history is best, and a negative payment history with late payments, collections, or judgments can be a red flag for lenders. Too many UCC filings may also be considered high risk. It’s crucial to review your business credit report and credit score and address any issues before applying for a loan.
Lenders want to ensure that you have enough cash flow to make periodic loan payments. Your business’s cash flow history is a good indicator of its ability to make payments on a small business loan. Many lenders will require at least three months of bank statements before approving a loan.
Traditional lenders, such as banks, credit unions, and SBA lenders, usually require collateral for small business loans. Tangible items like real estate or equipment can be used as collateral to secure a loan. However, even unsecured loans may require a general lien or personal guarantee.
Finally, lenders may have preferences for businesses in certain industries. Some industries are considered riskier and may be more difficult to finance. Lenders often identify industries by SIC or NAICS code and may have a list of restricted industries that they won’t finance.
Understanding what lenders look for in small business loan applications is critical for any business owner seeking financing. While each lender has its own specific criteria, paying attention to these common factors will improve your chances of securing a loan in North Dakota.
2. Decide What Type of Loan or Financing You Need
As a small business owner in North Dakota, it’s important to identify the type of loan or financing that best suits your business needs. Although you don’t need to be a financing expert, you’ll want to familiarize yourself with the different financing options available. Here are some financing options to consider:
Traditional Bank Loans
You may be able to obtain a term loan or business line of credit from a bank you already do business with or a new one. These loans offer some of the lowest rates, but they come with strict criteria. Loan amounts vary, and repayment terms range from one to 20 years. It may take a few weeks and significant documentation to get approved.
- Stable and trustworthy lenders
- Good interest rates and favorable terms possible
- Lots of documentation and paperwork required
- Longer application process
- May be difficult to qualify for
- Rates and terms depend on qualifications
These loans are made by nonprofit or for-profit lenders that aim to help underserved entrepreneurs. They may be more flexible when it comes to credit scores and are more likely to work with startups and new businesses. Loan amounts are smaller, usually ranging from $6,000 to $15,000, with rates comparable to business credit cards.
- Easier to qualify for than traditional loans
- More likely to work with startups and new businesses
- Smaller loan amounts
- May require significant documentation
Non-bank online lenders are the first choice for many small businesses today looking for loan amounts of $25,000 to $500,000 or more in some cases. Credit may still count, but revenues are often the most important factor. Many lenders can approve your loan the same day and deposit funds available in your account within a day or two.
- Fast application process
- Quick funding time
- Can be less focused on credit scores
- Often have high interest rates and less favorable repayment terms
- Can come with higher fees
- Need to ensure the lender is reputable
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Lines of credit
A business line of credit offers funds that can be borrowed again and again. This is traditionally a popular source of borrowed capital for many business owners and can be useful for short-term needs such as inventory, uneven cash flow, working capital, etc. Credit profile and revenues are often major factors for these loans, which range from $1,000 to $100,000 for qualified borrowers.
- Easier to qualify for than traditional loans
- Can borrow up to credit limit repeatedly after paying it off
- Great for short-term needs and cash flow
- Can have higher interest rates
- May have higher annual revenue qualifications
Small Business Administration (SBA) loans:
These loans are available for amounts ranging from less than $50,000 to $5 million and offer low rates and favorable repayment terms. Only SBA Disaster Loans are made directly by the U.S. Small Business Administration, and all others are made by participating lenders. The application process for these loans can take weeks or months, depending on the type of loan you are applying for.
- Low rates and favorable terms
- Borrow up to $5 million
- Backed by the U.S. government
- Difficult to qualify for
- Long application process
- Long wait for funding
Business cash advances
Financing is based on monthly or annual revenue and can range from $2,500 to $500,000 or more. Even applicants with less-than-perfect credit may qualify, provided the business meets minimum requirements for sales or transactions. The turnaround time can be very quick — often within 24 hours. Costs can be high and aren’t likely to be expressed as an annual percentage rate but instead as a factor rate.
Other financing options
Aside from the traditional financing options mentioned above, there are also several other financing options that small business owners in North Dakota can consider. These include:
Crowdfunding allows businesses to raise capital through a large number of small contributions from a lot of people. There are several online platforms that facilitate crowdfunding campaigns, and businesses can offer rewards to contributors based on the amount they donate.
Peer-to-peer lending involves borrowing from individuals or groups of individuals, rather than from a bank or other financial institution. This can often result in lower interest rates and more flexible terms.
Angel investors are individuals who invest in startups and growingbusinesses, often in exchange for equity in the company. They can provide not only financing but also mentorship and expertise.
Venture capital firms invest in startups and high-growth companies that have the potential for significant returns. They typically provide larger amounts of capital than angel investors but also require a larger ownership stake in the company.
It’s important to note that other financing options can have different eligibility requirements and terms than traditional financing options, so it’s important to do your research and carefully consider which option is best for your business.
There are several types of loans and financing options available for small business owners in North Dakota, ranging from traditional bank loans to alternative financing options like crowdfunding and angel investing. It’s important to carefully consider your business needs and do your research to determine which option is best for you.
3. Find Out How to Get Approved
Getting approved for a loan can seem like a daunting process, but there are ways to simplify it.
One option to consider is working with lenders who offer a pre-screening process. This process involves answering a few questions upfront, and within minutes you’ll receive a preliminary approval or denial. If you’re approved, you’ll need to provide additional information to determine how much you can borrow and what your interest rates and fees will be.
If your personal credit score is below 680, traditional banks may be less likely to approve your loan application. In such cases, online lenders may be a better option. They often have more flexible eligibility criteria and are more willing to work with small businesses that have less than perfect credit.
To find out how to get approved for a business loan, start by researching lenders that offer pre-screening or have flexible eligibility requirements. Be sure to compare interest rates, fees, and repayment terms to find the best financing option for your business.
4. Gather Documents
When applying for a small business loan, you’ll need to provide several documents to help the lender assess your creditworthiness and determine if you’re a good fit for the loan. While specific requirements may vary depending on the lender and type of loan you’re applying for, it’s best to gather as much documentation as possible to ensure a smooth application process. Here are some common documents you may need:
- Bank statements: You’ll need to provide recent statements for your business bank accounts.
- Tax returns: You’ll need to provide tax returns and supporting IRS documents for both your personal and business accounts.
- Licenses and registrations: You may need to provide proof of your business’s registration and any applicable licenses for doing business in North Dakota.
- Financial documents: The lender may request other financial documents like a profit and loss statement, unpaid invoices, and accounts receivable due to you.
- Legal documents: Any legal contracts that are relevant to your business, such as franchise or incorporation agreements, should be included.
- Business forecast: You may need to provide a detailed forecast of future cash flow and costs.
- Underserved representation: If your business qualifies for a loan aimed at underserved groups, like women-owned businesses, you may need to provide documentation of underserved representation.
- Business plan: An updated business plan with details on your growth and marketing strategies may be required.
It’s important to keep in mind that these are just some of the most common documents lenders may require, and requirements may vary. In general, you should be prepared to include any documents that you used when coming up with your business plan, as lenders will want to see evidence that you can pay back the loan.
5. Choose a Lender
As a small business owner in North Dakota, choosing the right lender can be crucial to the success of your venture. With so many options available, it’s important to narrow your search to those that offer the type of financing you need and are likely to approve your loan application based on your creditworthiness.
There are three main categories of lenders: direct lenders, lending marketplaces, and P2P lenders. Direct lenders, such as banks, credit unions, and online lenders, make loans directly to borrowers. Lending marketplaces, on the other hand, help you find lenders based on your qualifications. You enter your information one time and get matched to the best choice for your credit situation and financing needs. P2P lenders are another option, allowing you to share your story, explain your case, and get funding from a lender who is genuinely interested in your business.
Before choosing a lender, ask yourself a few questions to determine which option is right for youL
- Do you have good credit?
- How much money do you need?
- Will you need access to a continuous line of credit?
- Do you need your funds in cash or will credit or charge accounts work?
- Which banks do you have an existing relationship with?
- Are you willing to put up personal or business assets for collateral?
Keep in mind that some lender requirements are things you can work around, while others will be considered closed doors. For example, if your credit scores are low, a lender with a 680+ minimum FICO score requirement will be a barrier. A bank offering a higher rate of interest than what you ideally want isn’t a closed door, but it may not be ideal. Make a list of those things that you can compromise on if you have to, and understand that some factors are non-negotiable. With these questions in mind, you can choose the right lender for your small business and take the next step towards achieving your goals.
6. Fill Out the Application
Now that you have identified the type of business loan that suits your needs and gathered all the necessary documents, it’s time to fill out the application. The process is pretty straightforward, whether you’re sitting in an office or applying online from the comfort of your home.
The application may take some time, but it helps to have already gathered the required documentation. When you have completed the application, expect to wait between 24 hours and several weeks, depending on the type of loan you chose. If the lender requests additional documentation, be sure to respond quickly to avoid any unnecessary delays.
Keep in mind that banks have strict application requirements, so make sure to review your application before submitting it. Double-check all the information to ensure accuracy and completeness. Any mistakes or missing information can delay the processing of your loan application.
Filling out the loan application is an essential step in obtaining a business loan. The process is similar whether you’re applying online or in-person, and it’s crucial to provide all the required documentation accurately and promptly. With patience and diligence, you can increase your chances of getting approved for the business loan you need to achieve your goals.
Nav Helps Small Business Owners in North Dakota With Loans
Navigating the complex world of business loans can be challenging for small business owners in North Dakota. Thankfully, Nav is here to help. Nav is a small business financial health platform that offers a range of resources and tools to help small business owners access funding.
With Nav, small business owners can easily find the right lenders and loan products that meet their specific needs. By providing your business information, Nav identifies which loan options you can qualify for before you apply, allowing you to save time and effort in your search for lenders.
This article was originally written on May 16, 2023 and updated on June 1, 2023.
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