Getting a Loan

Getting a loan can mean the difference between having a roof over your head and sleeping at a shelter. It can mean the difference between getting a degree and dropping out of college or putting food on the table and having your kids sleep on an empty stomach. Of course, the situation is not always that dire. Sometimes, you just want to get a car or need money for your wedding. Perhaps you need a loan to open a small business. In any case, there are some things you will need to know before applying for a loan. Once you know the basics, you will need to know what to look for as well as the process of receiving a loan. The following are some general steps to help you get a personal loan.

Steps to Getting a Loan

1. Know Your Credit Score

The first thing you will need to do before trying to get a loan of any kind is to check your credit score and history. By knowing where you stand credit-wise, you will be able to have a better idea of what to expect. You will also know how much negotiation power you will have as well. You can get your credit history for free once a year at Annual Credit Report. What you will want to specifically look for is any errors that may adversely affect your credit score. Mistakes happen so you want to make sure you’re not being penalized for something you didn’t do or have done but isn’t being recorded properly.

In a day where identification theft is high, it’s important to periodically check your credit history just to make sure you don’t have any debt that you don’t know about. Also, there can be instances where you have a credit card that you already paid off some time ago that is still being shown as owed. If you do find anything wrong on your credit history, you will want to write to which ever of the three credit bureaus that is showing the mistake. We’ll get more into fixing mistakes in another article.

With you credit score, you will usually have to pay for that unless you happen to know someone who can check it for you for free. If you have bad credit, getting a loan will be more difficult and even if you do qualify, the interest rate can be through the roof. If this is the case, then you will need to spend some time improving your credit score. This can be done by understanding how your score is calculated. We’ll get into that in another article but for now, the general rules to follow is to always make your payments on time and try to keep your debt to credit limit ratio below 50%. The lower the better. Ideally, you want it under $20. That means if your credit limit is $1000, then you don’t want to owe any more than $200 – $500.

2. Determine How Much You Need.

Getting a loan will involve paying the money back eventually. Because of this, it’s important to know exactly how much you absolutely need to borrow. You will want to make sure it’s something you can pay back. If you are going to get yourself into debt, make sure it’s for a good reason. There is good debt and bad debt. Good debt is money you borrow that will be used for something that will make you money in the near future. This can be for college or for a business for example. Bad debt is money you borrow to use on things that won’t go up in value any time in the future. This includes things like cars and other consumer goods. The size of your loan will also determine where you can look. If it’s a small loan such as $10,000 or so, you try to look for lenders online. These smaller, short-term loans will be easier to get than the larger loans.

3. Learn About Different Loan Types.

Whether you are getting a small business loan, a car loan, or any other type of loan, you will want to know the different types that are available to you. Two common types of loans are the secured loans and the unsecured loans. With a secured loan, you will need to put up collateral that is equal or more than the value of the loan you are taking out. With an unsecured loan, you don’t need to have any collateral but the interest rates will be higher. This type of loan is usually only available to people with superb credit.

4. Shop Around.

In this step, you will be contacting your local banks and credit unions to find out about the different types of loans that they offer as well as what you will need to apply for those loans. Realize that the loan size will affect the depth of research you will have to do. Getting a home loan is a bit more involved in terms of paper work and other factors compared to a small cash loan for example. You will want to do your search online as well. Find out what type of interest rate you can get with your type of credit score and history. This will take some time and patience if you do it on your own. You can use a broker to help you with this as well.

If you are finding that the interest rates are way too high, then you will need to spend some time on improving your credit score. If you need the money right away, then another option you will have is to get someone to co-sign for you. This person will need to have excellent credit. You should take caution when using this approach and make sure that you can make the payments on time because you don’t want to mess up their credit in any way. Many friendships and family members have ended relationships over this type of stuff so think twice before asking someone to do this for you. Many students will use this method when getting a student loan since they may not have good credit or even any credit history at all and will have their parents co-sign for them to get better rates.

5. Apply and Finalizing.

Apply for the loan and have the right documents. Whether you are getting a business loan or getting a mortgage loan, you will need to bring the right documents to your appointment. You will need things like proof of income such as 2 or 3 months worth of pay stubs, your driver’s license, social security card, as well as income tax documents. Different lenders will need different things so make sure you ask them what is needed so you don’t miss anything.

Remember to read everything before you sign the loan papers. Make sure you understand the payment structure, any fees that are involved, prepayment penalties, etc. You will also want to know exactly when the first payment is due and for how much. The last thing you want is the miss your very first payment.

This is the general steps of getting a loan. Once you get a loan, make sure you pay on time every single month. In order to actually pay your loan off and reduce the amount of interest rates that is coming out of your pocket, make sure you pay more than the minimum if you can. Getting a loan, although difficult sometimes especially in this economy, is the easy part. Paying back the loan is the hard part. Make sure you understand what you are getting yourself into and that you have a very good reason for taking out a loan because chances are, you will be spending many years trying to pay it back. So think carefully before applying.

In times when unemployment rate near historic highs, many people will come to the realization that the only way to improve their financial situation is to start a small business. This, however, can be a challenge since these days, getting a loan is a bit harder because of the financial meltdown involving bad bank loans. Getting a small business loan may not be the easiest thing to do but here are some tips that may help you on your way. Small businesses help stimulate the economy be providing jobs. Because of this, the government is willing to help in this aspect. Although banks are a bit more careful and strict these days, in order to stay in business, they need to lend money. Your job will be to show that you are a good investment for them.

How to Get a Small Business Loan:

If you are completely new at this, one thing you can do that may help you get a small business loan is to contact the development center for small businesses. This is part of the SBA, which is government ran. You will be able to connect with people who have a lot of experience with getting these types of loans and can help steer you in the right direction. Knowing what to do ahead of time will be invaluable in terms of your success in getting a loan for a small business.

The next thing you will want to do is be prepared to give lenders the information that they will need to determine whether or not they should give you a small business loan. There are normal four things that they will look for in order to help them decide if you will be a good investment for them. The first is business experience. This is obvious. If you had a business before or you’re currently running one, you will have a much better chance since you will be able to show a track record. This is like sales companies hiring sales people who have a history of being able to close sales. If this is your first business, then you will be at a disadvantage but not all is lost. You can still show them any experience you had in managing a business or any other related experience with different aspects of running a business.

Another thing you will want to show your lenders is your ability to pay back the loan. This will include what sort of income you are getting, assets, credit score and history, tax returns, and any other document that can show the lender that they can count on you to repay the loan in full instead of going into default. Obviously, if you had a previous bankruptcy or have really bad credit, then getting a small business loan will be a bit harder. You will also want to provide documentation of any collateral that you may have as well. Your character will play an important part in getting a business loan as well. The more reliable and capable you seem to the lender, the higher your chances will be.

There are many things you can do to improve your chances. One thing you can do is to give the bank your business. You can do this simply by taking all of your accounts over to that bank. This way, they will be able to look at how you take care of your money. By giving them more data on how you handle your finances, you will increase your chances of getting that loan. Another thing you can do that many people overlook is to get to know the people who work at the bank. This includes the loan officers, bank tellers, and other employees at the bank. The more likable you are, the more trustworthy you will be in their eyes, and the higher the chances you will have to get a business loan.

If you happen to know someone who has successfully gotten a loan over and over again with the bank, then you may want to ask them to come along with you when apply. Their reputation can give the bank more confidence in your ability to pay back the loan. If you don’t know anyone, you can try to get help from someone in the development center for small businesses at SBA.gov.

So what do you do if you apply for the business loan and you get denied? Well, the last part in how to get a business loan is to keep trying again. If you go to one lender and fail in getting a loan, try another lender. Many people fail to obtain a loan their first time so don’t feel to bad if you don’t get approved on your first try either. If you have been turned down a bunch of times, then you may want to contact SBA.gov (Small Business Administration) to see if you qualify for any of their guaranteed loan programs. The fact is that banks want your money. That’s how they make money in the first place. However, you will need to prove to them that you can and will pay the money that they lend out to you.

Having all of the things mentioned above such as the right documentations, financial history, previous business experience, and character, will certainly help you in getting a small business loan which will not only help your financial situation but will possibly help give someone a job as well. This is why the government has many different programs to help people start a small business. They know that small businesses are the fuel that keeps the economy running.