Why do you need a loan? It may seem like a simple enough question, but knowing how to respond concisely is the most important part of applying for a loan. Lenders will want to know exactly why you are looking to borrow money, how much you will need, and how the loan will impact your business or your personal life.

While focusing on the long-term benefits of your loan may be tempting, don't overlook the daily, weekly, or monthly payments you'll be expected to make. You want to find a loan that will both give you access to the funds you need and that you will realistically be able to pay off. You should calculate rate on interest, processing fees and other costs to be incurred while applying and availing loan.

Don't just go with the large bank down the road because you assume they will have the best deals. There are many factors that are involved in the true cost of a loan (interest rates, length of loan, monthly payments, etc.) and it's important to calculate these costs for every lender. Don't forget to talk to your friends in your area about their experiences. Inquiries do show up on your credit report, and lots of inquiries over a short period of time will indicate desperation to potential lenders and may even negatively affect your score.

Expect lenders to check both your business' credit score and your own. It's very hard to improve a low score, but you can always do some cleaning up before you apply. There are occasionally errors in credit reports, and you'll want to catch these long before you begin the application process to give the reporting agencies time to fix your score.

Business plans are often the first thing lenders look at when considering your application; a poorly put-together business plan may be the last thing they look at too. It's incredibly important to make a good first impression with your potential lender, and you want to come across as competent and knowledgeable about your business. Your lender will take you far more seriously if you show up with your business plan in hand. Good business plans will be extensive and will require lots of work, but taking the time to carefully develop your plan could easily be the difference between your application being quickly discarded or followed-up on.

Many—although not all—lenders will require some form of collateral before agreeing to lend to you. While there are many things you could list as collateral, lenders generally prefer tangible options such as property or equipment that could be sold if necessary. If you choose to go with a loan that does require collateral, go through the appraisal process beforehand to get an accurate idea of the worth of your options. Your lender will want to see some type of recent documentation specifying that the item or items you are using as collateral is actually worth what you say it is. Don't forget that this is something you could be giving up if you don't pay your loan off; do the potential benefits outweigh the certain risks?

Your lender will want to see your Identity Proof, Residence Proof, Office Proof, current bank statements, credit card statements, and tax returns or Salary Slips and may also require additional documentation to verify that you and your income. Collect this information before you apply! Your lender will expect you to be adequately prepared by the time you are applying for your loan, and it will reflect poorly on you if you aren't.

Perhaps one of the worst things you can do when applying for a loan is wait until the last minute. Ideally, you should apply for a loan long before you need the money. The more urgent your need for funds, the more desperate you'll come across to your lenders, and the less likely you are to be approved for the loan. It's always easier to get a hold of the funds you need if you apply long before you actually need them.