- Five steps to follow before you take a loan
For business requirement, or higher studies, or footing the medical bills or housing loans, there are an array of loan categories available in the market.
Getting a small business loan is a major hurdle facing small businesses, mainly due to tight lending standards by banks.
These simple steps will guide you to avail loan.
why do I need this loan?
First up is knowing exactly what type of loan you need.
That decision impacts the size and duration of the loan, as well as the interest rates attached to the loan.
After all, auto loans and mortgage loans, for example, are entirely different loan products, and each needs to be treated uniquely.
It is essential to understand the main purpose of the loan.
Write down the approximate amount of money you require and find out the type of loan and repayment tenure that may suits you the best.
The lending platforms can be used as guidelines for the exact loan requirement and through machine learning, the loan requirement can be determined easily.
Decide which type of loan is right for you.
Your reasons for needing the loan will dictate the type of small-business loan you get.
If you’re starting a business, it’s virtually impossible to get a loan in your company’s first year.
Lenders require cash flow to support repayment of the loan, so startups are typically immediately disqualified from financing.
For merchants, assessing the sale opportunity is the key to understand the loan requirement as many people for stocking up sales in these festival seasons take a prior loan for the marketing spend to boost their sales.
Standard loans include:
Small business loans
Home equity or home line of credit loans
Determine the best type of small-business lender.
You can get small-business loans from several places, including banks, nonprofit microlenders and online lenders. These lenders offer products including term loans, lines of credit and accounts receivable financing.
One has to pay interest along with the amount of loan.
It is an additional outflow of cash, you must do a thorough research of the rate of interest applied by different loan providers in the market.
The interest rate helps in determining how much capital we can borrow and this helps us not to go overboard and end up over borrowing.
USE BANKS WHEN:
You can provide collateral.
You have good credit.
You don’t need cash fast.
USE ONLINE LENDERS WHEN:
You lack collateral.
You lack time in business.
You need funding quickly.
Find out if you qualify.
Your place on the credit spectrum is one factor that will determine which loans you’ll qualify for.
You can get your credit report for free from each of the three major credit bureaus — Equifax, Experian and TransUnion — once a year.
You can get your credit score for free from several credit card issuers as well as personal finance websites, including NerdWallet.
When a bank or lender requests your credit score, credit reporting agencies compute the score using a proprietary algorithm.
While borrowers won’t know the exact score lenders are using, they can use their credit scores to understand generally how they appear to lenders, risk-wise.
Younger consumers looking to bolster their credit history can take several key steps. For starters, check with your landlord to report monthly rent payments to the three major credit bureaus.
Additionally, leverage a low-interest card when making smaller purchases like a coffee and danish at Starbucks or by paying your dry-cleaning bill, then be sure to pay the credit card bill on time.
gather your documents.
Start by sticking to one lender at a time.
Typically, lenders will pull a copy of your credit report, an action that triggers an uptick on your credit score.
Applying to multiple lenders could result in repeated negative hits on your credit score, so that approach should be avoided.
lenders will want to see the following personal financial information on a loan application.
Proof of employment.
List of other loans and debt obligations, including mortgage and credit card debt
Social Security number.
In some cases, you may be required to provide proof of income, such as pay stubs or past tax returns.
Copy of your driver’s license
Depending on the lender, you’ll need to submit a combination of the following documents with your application:
Business and personal tax returns
Business and personal bank statements
Business financial statements
Business legal documents