If you’re a new business or even an established one, getting a small business loan is something you need to understand. Many businesses are greatly helped by having sufficient capital to weather the storm. Even if you have sufficient assets or capital, you might still want to get a small business loan. Estimating expenses is important but many times these expenses are much greater than expected. Just one emergency can make many businesses fail. Having funds available can mean that your business is adequately prepared to handle nearly anything. The small amount of cost in interest is well worth the peace of mind. This article will address the different types of loans available and how to secure financing.
You must first determine what type of loan you need.
A Small Business Administration loan is typically what most people think of when they are just starting out. SBA loans have many benefits to them. They offer reasonable interest rates and are designed to satisfy the unique needs of a small business. Private investors are a great option for those who have a solid business plan but might not have the best credit. The same goes for private equity firms. Finance company loans are also good for those who might not have great credit. Crowdfunding and similar types of loans are good for those who think they could benefit society with their product or service. The list is exhaustive, which is why it’s an important topic to understand.
If you’re already in business:
If you’ve already opened your business, then you’re already ahead of the curve. It’s important to remember that having adequate resources is essential to any business’s operations. Having to scramble for credit at the last second is never any fun. Whether you could stand to make improvements to your business or simply need reserves, a small business loan is a smart choice. You also have more options available than someone who’s just getting started. For example, a business line of credit is an option that would be much easier for an existing business to obtain. You’ll need to have cash flow statements, profit and loss statements, and, of course, your business plan available. Another benefit to a small business loan is that it helps your business build its own credit. You can also get away from comingling your personal finances with your business finances. No matter how you look at it, a small business loan is always well worth the small amount that you’ll pay in interest.
How do I apply for a small business loan?
Applying for a small business loan is similar to a personal loan but there are also several differences. If this is your first business loan, you’ll most likely have to use your personal credit to qualify. This is because your personal finances are a great indicator as to how you’ll manage your business’s finances. You should also be prepared to have collateral available to secure the loan. If your credit has items that are questionable, it’s always much smarter to clean these up beforehand. Doing so will make you a much better risk to the lender and will land you a better interest rate. Many people wonder why they need to mix their personal finances together with business finances. The answer is simple. Lenders simply have no way to determine whether or not your business will be successful. They must have some indication as to what type of risk you pose.
You also need to have a solid business plan. Aside from credit, a business plan is the other key to getting financing. A poorly written business plan can throw a wrench into your plans. If the bank sees that you’re not taking your potential investment seriously, they’ll most likely react with a similar response. If you’re unfamiliar with business plans, it’s best to hire someone to prepare one for you. If you can afford to hire someone, a crash course in writing one is the next best option. You’ll have an interview with the bank. It’s imperative that you know the business plan inside and out. If you can’t answer the questions they ask, don’t expect approval.
Once you’ve sold them on your great idea, be prepared to provide them with all the paperwork they request. Having this information beforehand will not only speed up the process, but it’ll also make the chances of getting approved much higher. It’s important to remember that until a human with decision making powers signs off on the loan, everything is a conditional offer.
You’ve applied for your loan and are nearing approval.
Once you’ve completed the application process, it’s important to make sure that you understand how the loan is structured and how you’ll repay it. While it’s always smart to obtain financing, it’s also necessary to ensure you’re not borrowing more than you can actually afford. If you’re unable to repay the loan, you’ll most likely have to dip into your own personal assets to repay it before the bank does. There’s also a good chance that the business loan will also show up on your personal credit report. It’s a good idea to monitor your business and personal credit regularly.
It can’t be stressed enough that paying the loan on time is critical. Also, if you have trouble repaying the loan, contact the lender immediately. Most lenders would much rather restructure or refinance a loan than have to make collections efforts. If you’re able to make additional payments on the loan, you should. This is exceptionally true for a business line of credit. Even if you don’t use the funds immediately, they must still be repaid. Paying ahead of time is great for your credit and your wallet. It also lets the lender know that you’re a good risk. All things considered, a small business loan is a useful tool to have in your arsenal.