A business loan application process varies from one lending entity to another. To apply for a small business loan, you will need to gather financial information, including your business’s income statement, balance sheet, and tax returns. Additionally, you will need to provide a business plan outlining your goals and the strategies you’ll use to achieve those goals.
The type of funding you need and the lender you work with might dictate the process you use to apply for the loan. You could familiarize yourself with some general steps many businesses follow when applying for funding. They are:
- Funding needs assessment: A needs assessment includes determining how much your business needs, indicating what you would use the funds for, and how you plan to repay the money. Conducting a funding needs assessment will be essential in determining the right type of funding you need for your business.
- Conduct research: Upon having a clear picture of the funding options you have for your business, you could research the different types of funding available, including equity financing, grants, or loans. During your research process, search for the various investors or lenders offering these funding options and whether they suit your business needs.
- Draft a business plan: When applying for funding, most investors and lenders will require a blueprint of your business, such as a business plan. Providing a detailed business plan comprising essential information about your business, its products and services, financial projections, target market, and how the funding will be used.
- Gather financial documents: As a requirement, lenders and investors will require you to provide financial records, including financial statements, bank statements, and tax returns, as part of the application process. You should gather these documents in advance to avoid the eleventh-hour rush and ensure a smooth application process.
- Submission: With your business plan and financial documents ready, you can submit your funding application to the preferred lender or investor. Depending on the investor or lender’s requirements, you could submit your application online or in person.
The process of applying for business funding can be complex. However, you should be careful in your preparation and conduct sufficient research to increase your chances of success. When applying, ensure you have all the documents for an uninterrupted process.
What are some common reasons for funding applications to be rejected?
While you may try your best to prepare the requirements for business funding, some issues could cause your application to be rejected. The rejection comes unforeseen, thus remaining with limited options on which way to go. To avoid such disappointments, here are some reasons why a business funding application may be rejected.
- Bad credit history: Lenders often check your credit history before deciding whether to fund a business. Suppose a business has a poor credit history. In that case, the lender may view the business as a high risk. Therefore, the lender may reject the business’s funding application.
- Insufficient security: Lenders may require you to provide collateral such as equipment or other property. A lender may only accept your application if you have sufficient security for the funding. The collateral requirements depend on the lender’s requirements.
- Lack of or poor cash flow: Every lender wants assurance that the business will repay the funding once given. If your business has a history of poor cash flow or inconsistent financial projections showing no ability to generate cash flow, the lender may decline your funding application.
- Inaccurate or incomplete application: Inaccurately filled or incomplete funding applications may be rejected. High care is essential when reviewing your funding application before submitting it to ensure completeness and accuracy.
Most importantly, carefully reviewing the eligibility requirements and application criteria is vital. This keen review lets you know whether you have met all the requirements before submitting your application.