7 Steps To Get A Small Businesses Loan in Virginia
*Disclaimer: Emerge blog posts are purely for educational and informative purposes. We are not a certified financial or business consulting agency. This is not professional financial advice and should not be read as such. Please read with a grain of salt. And perhaps some avocado toast so you can sprinkle that salt onto it for a boost of flavor. Emerge strongly recommends that you conduct your own research and speak with qualified professionals when pursuing further financial action. We are here to generate blog posts for your reading pleasure.
Most of the time, funding (or the lack of) can be what holds someone back from fulfilling their dream as a small business owner. In cases like the year 2020 where COVID-19 put most everything on a weird standstill, small businesses are experiencing significant financial distress.
And that’s when the need for a small business loan may come in.
You have plans for your business (whether that’s starting up or keeping it afloat) and a small business loan can help with that.
Whether you’re looking to begin your next business venture or to maintain your current livelihood, we’re here to give you a step-by-step guide to acquiring a small business loan in Virginia.
Step 1: Determine How Much Money You Will Need
How much money do I need for my business?
This is the first question to ask yourself when considering applying for a loan. Unfortunately, there is no universal answer to this question.
A number of factors will determine how much you may need for your business, including how you want to use the money.
Here are the more common financial allocations a small business owner can take:
- Beginning a business
- Expanding a business
- Managing day-to-day expenses
- Purchasing equipment to help increase cash flow
- Creating a safety cushion for unforeseeable events
The last thing lenders want to hear when figuring a loan that is appropriate for you is that you don’t have a specific plan for the future of your business.
“I’ll take as much money as you’ll allow me” is not an appropriate response when applying for a small business loan.
That’s like a young child asking their parents for an extra allowance “just because.”
When applying for a loan, you have to have a plan.
A lender is more likely to qualify you for a loan if you have an exact vision with a plan for adequate financing.
*In figuring out how much money your business would require from a loan, be sure you are considering how loan repayments may affect your company budget.
Step 2: Find A Loan That Best Fits Your Business Needs
Once you figure out the amount you need for your business, you will want to make sure you apply for a loan that will address your specific needs.
For available business loans, there is an abundance of sources where you can get them.
Here are the most popular distributors of small business loans:
- Credit unions
- Non-profit organizations
- Community organizations
- Online lenders
*It’s best to choose your type of loan based on the criteria that is required from lenders. For instance, a loaner may want three years of tax returns for your business. If you’ve only been in business for three months, you won’t qualify for that particular loan.
Popular Types of Loans for Small Business Owners in VA
- SBA Guaranteed Loans
- The Small Business Administration (SBA) is a government agency that is specifically intended to help small businesses get their feet on the ground. A portion of loans from banks, credit unions and non-profits will be reserved by the SBA and granted specifically to small businesses.
- Bank Loans
- Bank loans can be either short term (6-24 months) or long term (3+ years). Whichever bank you are using to request a loan will have certain interest rates for particular credit scores. Typically, these loans are repaid by monthly payments.
- Equipment Loans
- As a small business, there is oftentimes machinery and other equipment that is necessary for your services and products. Depending on what you need and how much of it that you need, banks, equipment loan companies or equipment manufacturers can offer you loans. These loans, similar to car loans, will use the equipment as collateral.
- Business Line of Credit
- Like most lines of credit, a business line of credit allows small business owners to borrow up to a set credit limit. This is a good alternative for owners who have customers that may take a long time to pay. Business lines of credit can ensure you keep a flow of working capital.
- If you’re looking for a smaller loan, consider a microlender. These SBA-guaranteed microlenders can offer up loans up to $50,000. Other nonprofit organizations can offer microloans to businesses that have goals that align with their mission.
Step 3: Check Your Credit Scores
This may be the easiest step when looking to acquire a business loan. To help determine your history of repayment, loaners will check your credit score. This could be either examining your business or personal credit.
If you’ve been in business for a while and have established a credit score, your personal credit won’t matter as much.
On the other hand, if your business is just starting out, then banks and other lenders will look at your personal score.
Be sure you get a business credit report before beginning the loan process. A good credit score will give you a higher chance of receiving the loan you want at a rate you want.
Step 4: Gather Required Documentation
Depending on what type of business loan you are applying for will determine the type of necessary documentation you will need to have.
The lender and loaning company may require documents including the following:
- Income/cash flow statement
- Financial projections (3-5 years worth)
- Business bank statements
- Tax returns
- Business licenses
- A written business plan
Step 5: Find the Value of Potential Collateral
It can be easier to get a loan when you put up collateral. It can also help you get better terms. When you pledge collateral to your lenders, it means you’re using the value of your property to determine the amount of loan you may be able to get.
Business collateral can include:
- Real estate
- Accounts receivable
If you don’t have any business collateral because you’re just beginning your business, personal assets are an option. Be careful about what personal assets you decide as collateral and be sure you don’t risk what you aren’t willing to lose, should something happen.
Here are examples of personal collateral:
- Fine art
- Savings/retirement accounts
- Your home
Step 6: Shop Around
As with any major purchase, you will want to be sure you look at as many options that are available to you as possible. Check out several lenders to compare loans and find the loan that is best for your business goal.
Consider the following factors before agreeing to any given business loan:
- Annual Percentage Rate (APR)
- Amount and term of the loan
- How quickly the loan will go through
- Consider the total cost
- Be sure the monthly payment fits in your budget
Step 7: Apply For A Business Loan
Be sure you’re not waiting until the last minute to fill out an application for a small business loan in the Virginia region. These loan approvals can take up to weeks, or maybe even months for approval.
Be sure you have followed all the necessary steps and have all of the appropriate documentation ready. Any missing or incomplete information can aid in the delay of approval.
We hope these steps have been helpful for you! We can’t wait to see the start of your business. If you’re just getting started, check out our small business packages.