If you own a business or are considering opening one, you’ve probably thought about a small business loan. Even those with significant financial strength are able to benefit from a small business loan. They provide the necessary funding to get your business up and going. If you have enough to fund your business, a small business loan will provide you with a cushion in case of unexpected expenses or an emergency. Unfortunately, many businesses close due to inadequate funding. Missed items in a business plan or a lack of revenue can cause any business to suffer. Fortunately, there are many different options available to help. This article will cover the application process and the different small business loans that are available.
Getting ready to apply:
Proper planning and preparation are fundamental to getting approved for a loan. A business plan is typically an absolute must. If you’re unfamiliar with how to construct a business plan there are services that can help. Hiring an author or consultant to help you write the plan and explain it is always a good idea. You must be able to clearly convey what your business’s function is and how it would be a profitable venture. The more information and visual representations you can provide the better. Once you’re properly equipped with a solid business plan, you’ll be ready to apply for a small business loan.
How the small business loan application process works:
When you’re ready to apply for the loan, you’ll want to get in touch with the bank or lending institution. They’ll probably ask you to provide them with as much personal financial information as possible. You may be asked to provide collateral or equity to qualify. Retirement accounts, cash on hand, property, and many other things are able to secure the loan.
The finance company will also require a personal credit check. If the business has already opened, they’ll require a business credit report and financial statements. If your personal credit is strong, you’ll most likely be able to qualify for most loans. If it needs improvement, you’ll need to address these issues. It’s a good idea to fix any credit issues before applying if possible.
If you have credit concerns:
Checking your personal credit is a necessary step. All of the major credit bureaus will provide you with a free credit report every year. Other events such as being denied credit may also qualify you for a free report. If you’re unable to get a report for free, there are many credit monitoring services available for purchase online. Some are free and some are paid subscriptions. Typically, the services provided are the determining factor with pricing. If there are delinquencies, charged off accounts, or any other concerning items, you’ll want to either fix or dispute them. If you have a large number of items to dispute, hiring a credit repair service may be of value to you. For a monthly fee, they’ll dispute any derogatory items and attempt to have them removed from the report. You may still be able to qualify for a small business loan even with delinquencies.
After your credit is checked:
The bank will most likely ask you for an interview either online or in person. You’ll have to present your business plan in an accurate and concise manner. The loan officer will consider all of the information you’ve provided and determine whether or not to approve the loan. This can take a few days. Some lenders have the ability to provide instant approvals with the proper documentation. Bank loans are typically guaranteed by the Small Business administration. They also offer the best terms and interest rates, making them an attractive option for many new business owners.
Alternative financing options for small business loans:
If you’re not wanting or unable to obtain a traditional small business loan, there are several other options to consider. A venture capital or private equity firm may be interested in funding your business for a stake in the business. This means that they own a portion of the business. There are many different types of agreements with these companies. This type of financing places a strong emphasis on the actual business plan and less on your credit. Hiring an attorney to review the contract prior to making an agreement is advisable. These contracts can be complex in nature and it’s critical that the business owner fully understands the agreement.
For established businesses, merchant cash advances are a great alternative financing source. This loan is made on your existing credit sales. The funding times and underwriting are quick. The interest rates and fees may be higher than a traditional loan. For companies with cash flow issues, these loans can provide nearly instant relief. This is not a good option for businesses that are experiencing a slump as the loan is solely based on sales.
A business line of credit is a good option for established businesses with an established credit history. These loans allow the business owner to draw on the line of credit when necessary. This provides quick cash without having to go through a lengthy underwriting process. The entire loan must be repaid even if the owner doesn’t draw on it. This is a good option for businesses with a strong financial record that is seeking a cushion for unanticipated events or cash flow issues.
Now that you’re in business:
After obtaining the loan you’ll have the cash you need to get going. It’s important that you repay the loan according to its terms. If you are unable to make the payments, it’s always best to get in touch with the lender right away. They may be able to modify the agreement or help you resolve any financial issues. Establishing a good credit history for your business provides you with benefits for years to come. It also saves you money on interest and other costs. Getting a small business loan is an important and beneficial first step in the establishment of any new business.