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Getting pre-qualified for a business loan is a great way to find out what terms you might qualify for. But a pre-qualification offer is just the first step in the application process, and it’s no guarantee you’ll get approved.
If you’ve received a pre-approval letter in the mail or pre-qualified with a lender by yourself, here are your next steps.
1. Compare multiple pre-qualification offers
If one lender has pre-qualified you for a certain offer, it’s possible that others will do the same. Take the time to check out loan offers from at least three to five other lenders so you can compare them.
Specifically, look at the loan amount, interest rate, upfront and ongoing fees, funding time, and the repayment terms. Also, find out what kind of requirements each lender has in terms of collateral and personal guarantees. In some cases, it may be worth taking a loan offer with a slightly higher APR if it means you don’t have to put up any collateral to secure it.
Finally, virtually all business lenders have minimum requirements for your business and/or personal credit score, your time in business, and your revenue. Make sure to choose a lender that won’t deny you automatically based on these criteria.
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2. Consider alternative financing options
Getting a business loan can help you build your business, but it’s not the only way to get financing. If your pre-qualification offers all have unfavorable terms, or you’re not sure you want to deal with monthly payments, there are other options you can pursue.
Crowdfunding, for instance, allows you to get the funding you need to launch a product or service without requiring you to give up equity or pay the money back. Instead, your obligation to your backers is the product you want to sell to them anyway.
If you’re fine with giving up a little equity, another option is to work with an angel investor. In addition to getting an influx of cash, you may also have an opportunity to have a mentorship relationship with your investor. Through it, you can learn how to manage your business better and increase both your and their return on investment.
3. Pick a lender and find out about their requirements
If you decide to go with a lender instead of an alternative, know that most commercial lenders require a lot of documentation to get approved for a business loan. You may need a business plan, tax returns, bank statements, legal documents and more. Before you officially apply for the loan, find out what you need to provide and gather it.
Being prepared will not only make the application process go more smoothly, but it can also save both you and the lender time.
4. Submit your application
Depending on the lender you chose, you may be able to apply for the loan online, over the phone, or in person. If you have more than one option, pick the one that you feel most comfortable with. If you already know the process and requirements from the start, you should be able to finish the application and provide documentation quickly.
Depending on the lender and loan type, approval and funding can take anywhere between a day and a few months. Make sure you know the funding time to ensure that you get the cash by the time you need it.
5. Create a repayment strategy
The last thing you want is to take out a business loan and end up defaulting. According to the U.S. Small Business Administration, though, 50% of small businesses with employees don’t last five years.
If your business does struggle or fail, defaulting on your loan could mean losing your collateral or having to pay it off with your personal assets. Otherwise, it could damage your credit.
As a result, it’s crucial that you have a repayment strategy in place, including contingencies for situations where your cash flow is irregular, or your business doesn’t work out.
The bottom line
It’s always a good idea to get pre-qualified for a business loan before you apply. Instead of going through the process with each lender, though, sign up for free with Nav to get matched with loan offers from several lenders without needing to fill out any extra online forms.
Once you have pre-qualification offers in hand, make sure to compare them with other loan offers and alternative options. Regardless of which one you choose, make sure you’re prepared before you apply. Then once you receive the loan funds, do everything you can to make sure you repay the debt in full.
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