How To Get A Bank Loan: Important Steps To Make You Eligible For A Loan
While it is often advised that small business owners – especially newbie entrepreneurs – stay away from debts and loans, loans have also salvaged a lot of people and business owners from difficult situations. A loan can be helpful in paying for the things you need when you are out of cash. However, getting a loan can be quite complicated. You need to equip yourself with possible things to expect and the guide on how to get a bank loan.
Commencing a bank loan with no knowledge of what the process entails can cause you to get frustrated in the process and finally get your loan request rejected. So, if you are to start a bank loan process today, what are the things you should be doing, and what should you be expecting to increase your chances of getting approved for the requested loan?. How to get a bank loan involves steps which are captured below.
Here Are Things You Should Do To Get A Bank Loan
1. Understand Your Credit
If you are a newbie entrepreneur or totally ignorant of loan procedures, generally, you need credit to get a loan from the bank. Even more important to know is that your credit would determine the kind of loan you are given, and the loan terms involved. This generally means that you must have a good standing in your history of acquiring loans and paying them off.
But what do you do when you do not have a credit but still need a loan? Then you may want to consider some riskier methods which require that you borrow less cash that also has higher interest rates. You can go for online lenders that are willing to offer you loans outside your credit. Your major focus is to build a good credit history for bigger loans with reduced interest rates.
View your credit for free – get a free report annually from three major credit reporting agencies: Equifax, Experian, and TransUnion. Ensure that you review your credit history so as to view it in from the angle of lenders when you apply to get a loan. If there is not much data available, your chances of getting a loan will become more difficult. And that means you’ll find other ways to build credit before acquiring a bank loan. Ensure that you fix any issue or error in your credit files as they frustrate your efforts in getting loans since lenders will only see you as a risky borrower.
2. Make A Decision On A Bank Loan Amount
In all your move in getting a bank loan, be sure to always remind yourself that the money you are trying to get isn’t free money. And in fact, it should be well thought of because of the rules that guides it. You will not only be paying the amount you are applying for, you will also be paying extra, depending on the period of time, and the bank giving out the loan. And failing means that you create a bad credit for yourself.
So, it is only wise that you decide an perfect amount for your plans and capacity to repay. Think properly based on what you intend to achieve with the loan, and how realistic and comfortable paying back the loan would be for you.The loan payment method may be weekly, monthly, or quarterly.
You may also want to consider running your loan calculations ahead, to settle on a right figure. With this you’ll be able to see how much you’ll be paying for a specific loan amount, and how going for a different loan amount, loan interest rate, or loan term, might be helpful in saving you money. You’ll be able to access several online tools in calculating your prospective loans. But then, your final loan installments from your lender may be slightly adjusted, depending on what criteria you meet.
3. Determine What Kind Of Bank Loan You’ll Need
After deciding on your loan amount, then go on to figure out what kind of bank loan you need. What exactly you plan to achieve with the money should reflect on what kind of loan you are going for. Some of the common types of bank loan are student loans (used for educational purposes), personal loans (can be used for almost every purpose), auto loans (used for purchasing a vehicle), business loans (for starting a business or for business expansion), fast loans (to produce quick cash for emergency situation), and home loans (mortgage loans – for acquiring a home or borrowing against the equity in your home)
On some occasions, lenders may cause you to take certain types of loans that do not meet your projected requirement for the loan. For instance, you may pay for health using a personal loan, or for home repairs or other needs. But other loan types you get must be precisely used for the specfic reason you got them.
For instance, for you to get a student loan, you’ll be required to provide proof of enrollment for an academic session. In addition, mortgage loans are generally used for purchasing homes. Credit scoring algorithms are usually customized for some lenders for certain kinds of loan. So, it is generally beneficial that you choose a loan type that meets your specific need for applying for the loan.
4. Make A Decision On Where To Get Your Loan
After making a decision on your credit, amount of loan, and loan type, then you should make a decision on where you intend to acquire the loan. The type of loan you’re aiming for will determine where you’d look out for a loan. There are money lenders that will not approve student loans and business loans. Like you may consider going through your school’s student Aid office to get an education loan before approaching a bank for a private student loan.
Most loans are best gotten from credit unions and banks. But it is better to weigh your options by checking out multiple institutions and making a comparison of interest rates and costs. You should also consider online lenders with reputable web platforms.
Borrowing from family and friends is also a good idea to look into. You are very likely to get quick approval and no interest rates, however, it is important that you document everything you are doing over money, so that everyone involved can be on the same page. When it comes to money, even the closest friends could become enemies — you definitely do not want this.
You should also be wary of high-cost loans. There are people who will try to lure you into receiving loans that you can’t afford or do not qualify for in a bid to control you. Even though it can be tempting to fall prey for these predatory lenders after being turned down repeatedly by standard institutions, it is still preferable to keep off than finding yourself in a net that’s literally impossible to leave.
There are several fast loan kinds which would get you cash fast without having the triple-digit APRs of payday loans. And this includes Payday Alternative Loans (PALS) and receiving payroll advances from work. These options are better.
5. Know What The Loan Is All About
Do not be too quick to get yourself involved in a loan. Ensure to understand everything the loan is about. How are you going to be paying back the loan – periodically or once? What is the interest rate of the loan?
Get all necessary questions answered before you settle for the loan. You should also consider having the loan terms plugged in a loan calculator again for an amortization table, to help you budget for the loan and view your repayment pattern.
6. Calculate What Your Monthly Pay Would Be
How much you’ll be paying over a loan would be dependent on how much your loan is, the interest rate, and the loan terms. Always ensure that the loan amount you are getting is what you are capable of handling. Ensure that the process of repaying the loan will not deprive you of basic things you should be having. Look at what percentage of your earnings will go into the repayment of the loan, and if what you see is kind of ugly, then it is better that you reduce how much you want to borrow.
7. Run The Figures
After settling the process and getting to this point, then you can approach your potential lender and apply for the loan. Be open enough to your lender about your intentions to get a loan and what you intend to do with the money. You will be guided on the next steps to take in the process.
On your loan application, you’ll be required to provide your personal and financial information. It is very important that you are able to provide your lender with proof of a consistent stream of income to settle your loan. This will increase your chances of being offered the loan. And if perhaps you do not have a sufficient credit score or income, then you should consider having a co-signer who may be a friend or family member, and has a higher credit score or income than you.
After your loan application submission, your lender will evaluate your borrowing capacity. In some cases this process is quickly concluded, and in other cases it may take weeks to finalize. But you’ll be able to hastily complete the process if you get everything you need prepared, weeks before applying for the loan.
During underwriting, your potential lenders will review your application. They will pull your credit – or may just use a credit score – and may occasionally give you a call to get you to prove or clarify an aspect of your application. Be prepared for this and give honest and quick answers to requests to avoid having long delays.
8. Business Loans
Getting a business loan is similar to all other kind of bank loans. Most of the time, the same basic information that are required in personal loans are also requested in business loans. But then new businesses do not have a history of long borrowing. New service businesses and enterprises too do not have assets that they can pledge as collateral, hence, it may be a little more difficult for them to get loans.
To qualify for a business loan, your lender will most likely look into your personal credit as a borrower to determine if you are fit for a business loan. Your business’ credit may also be looked at. So, if you do not have enough business credit as a business owner, you may be required to pledge your personal assets as collateral for loans. However, it is advised that you build business credit to get qualified for business loans without risking your personal assets.