Applying for a small commercial loan for your business

Small businesses have two forms of financing – debt and equity. Debt financing includes small commercial loans which you may apply for at banks and financial institutions. The loan allows a business to meet its day-to-day cash requirements without disrupting its overall budget.

How to apply for a small commercial loan?
There are a number of banks and financial institutions that offer commercial loans for your business. Below are certain steps that you need to follow when applying for a loan:

Determine the purpose
First of all, you need to know the purpose of the loan. This will help you decide on the loan amount and the tenure. For instance, if you need funds to pay off an outstanding debt, the amount of the loan will be almost similar to the amount you owe and the tenure of the loan will depend on your monthly paying capacity. Similarly, if you need funds to buy inventory for your business, you may choose to go for a lump sum that you may allocate towards inventory purchase.

Compare lenders
There are numerous lenders in the industry. Compare the terms and conditions offered by them and choose the one that has the most favorable terms for you. Do not apply for a loan with the first lender you come across. Take time and study the lenders and their deals before you make your decision.

Review your credit score
For a business less than three years old, the personal credit history will also be evaluated. Hence, review your score before you make an application. Get the personal and business credit history in order. Review the credit report and if you see any errors, write to the agency regarding the same.

Approach the lender
After you have decided on the amount you want and the lender you want to borrow from, approach the lender with proper documentation. Apart from the business documents, the lender might also ask for your income tax statement to determine your ability to repay the loan. Your application for a small commercial loan will only be processed if the documents are in place.

Seek an appointment with the lender, establish the repayment tenure, and understand the terms of repayment. Remember to make use of the funds as planned and also take necessary steps for the repayment of the loan each month. With a positive repayment history, you will be able to enjoy easy and quick approval of similar loans in the future.