When you need a small business loan, ideally, you’ll find a lender that meets your needs, communicates clear and complete information, and is responsive to you. As a borrower, it’s just as important to give your lender the same attentiveness to make your loan process go smoothly. However, the loan process doesn’t just end once your loan is approved.
In this guide, you’ll learn the steps you can take to improve your loan process, even if issues arise.
What are the steps to an efficient and easy loan process?
It’s important to understand that the loan process begins with your first call or meeting with a lender and continues until your loan is paid in full. Here are steps you can take from start to finish, including what to do if you run into any challenges during your repayment period.
1. Prepare for the loan-application process
After you’ve done your research and found potential lenders, but before you apply for a loan, contact lenders to find out what documents are required as part of the loan process. These are generally standard throughout the lending industry regardless of whether you approach banks, credit unions, Community Development Financial Institutions (CDFIs), Certified Development Companies (CDCs), or other lenders.
Then, gather these documents. Having them available will make your application and underwriting processes more efficient.
If you approach a lender who doesn’t request all or most of these documents as part of the loan process, it may be a ‘red flag’ that you’re dealing with a predatory lender. Be sure to do extra research to ensure that you’re not getting yourself into a negative financing situation.
Documents that will likely be required during the loan process include:
- Two to three years of your business and personal tax returns for any owners with a 20% or larger stake in your business. This helps lenders confirm your income and that you’re up-to-date on your taxes, which is necessary for loan approval.
- A debt schedule that shows all current business debts, including the total amount of each, the principal balances, interest rates, repayment term, and the payment amount. This shows your lender how much debt your business is already carrying and the types of debt your business has on its books, like credit card debt, a real estate loan, or a working capital loan. This demonstrates your ability to take on new debt.
- Interim financial statements help your lender determine whether your business is generating enough income in the current calendar year to cover your current debt and other financial obligations – such as employee pay, insurance, and taxes – before adding an additional payment. At the very least, you should have an updated interim profit-and-loss statement (P&L) and an updated interim balance sheet available.
While you’re gathering this information, consider how a new loan will help boost your profitability or ease cash-flow crunches. Be prepared to discuss this with a lender. It shows that you’ve been thoughtful about taking on more debt, as well as how it will benefit your business’s bottom line. - A voided check from the business, so that your lender can wire the loan funds into your account, once you’re approved.
- Government-issued identification for all principal business owners with a 20% or greater stake in the business such as a driver’s license or a passport.
Pro tip: When you file your business and personal taxes, it’s a good idea to save PDF copies of those documents in a password-accessible file on your computer so that they’re easy to find. You should also save your updated interim financial statements, copies of owner identification, and an updated statement of business debt in this file so you have them ready when applying for a loan.
If you can’t submit your application documents in a single batch, compile as many as you can to submit. Then, let your lender know that you’re aware of the missing documents and when you’ll have them submitted.
2. Be proactive about issues at any point in the loan process
Lenders appreciate when potential and current borrowers deal with issues and challenges proactively – meaning that as the borrower, you take the lead when a problem arises, rather than waiting until a lender tracks you down.
At the start of your application process, talk to your lender about any issues that could negatively impact your loan application. For example, if you had a bankruptcy in the past, be upfront about it. Tell the lender how you resolved it, what you learned, and how you’ll prevent a similar situation from occurring in the future.
While some lenders won’t be able to move forward with you because of their loan-approval criteria, learning this early in the loan application process will save you a lot of time on the loan process with that lender. This will also give you the freedom to seek financing from other lenders who may be able to grant exceptions and work with you. Be proactive and honest about your situation from the start so you know where you stand.
If you’re in the repayment period and you run into financial issues, don’t wait until you miss a payment and your lender comes calling. Instead, be proactive and contact your lender as soon as you realize there could be a problem with your repayment. Whatever you’re going through, your lender has likely encountered a similar situation before and most times, they can help.
Pro tip: If you think you won’t be able to make a loan payment, tell your lender well ahead of the missed payment so that you could request a deferment or a period of interest-only payments. It’s also helpful to submit updated interim financial statements, as well as a narrative plan to show how you plan to get the business back on track and make regular payments again in the future.
3. Be responsive to your lender’s requests
Just as you’d be frustrated if a lender didn’t respond to your questions and requests, when your lender asks for information, documents, and signatures, be as responsive as possible.
There are many loan options where the application, approval, and payment timeframe are quick, but “quick” is relative to how responsive you and your lender are during the loan process. While your lender has an obligation to get you information and documents within certain timeframes, you also share that responsibility.
If you take several days or weeks to respond to emails and phone calls or to return documents, it will impact how quickly your loan can be approved and distributed. Be sure to sign all the documents related to your loan, as your lender requires. Doing this will ensure that you gain access to your loan proceeds quickly!
Pro tip: There will be times during the loan process when you’ll want to spend some time closely reviewing documents. For example, giving your closing documents a thorough review so that you understand the loan terms. You can contact your lender if you have any questions or concerns or simply need something clarified. You may also want to have your attorney review your closing documents, and it’s your responsibility to ensure they do so promptly.
It’s important to be attentive and responsive
These days, most financial institutions use online loan applications for some or all their loan options. This makes the loan application process much faster than it used to be, but whether the process is smooth, efficient, and fast relies on you being attentive and responsive. By doing so, you’ll receive your loan proceeds in a timely manner, so you can start focusing on growing your business!
Pursuit has loans and a line of credit to help your business thrive
When you’re ready to explore business loans and lines of credit to launch or grow your business, Pursuit has the financing you need. With options from $10,000 to $5.5 million, Pursuit can help you get the financing for working capital, the purchase or construction of commercial real estate, to refinance business debt and more for businesses in New York, New Jersey, Pennsylvania, Connecticut, Nevada, Illinois, and Washington.
Contact us to learn more.
