Working Capital Loans
There are many benefits to a small business loan:
If you’re opening a new business or trying to grow an existing business, you’ve probably already looked into a small business loan. There’s an overabundance of information and loan products to choose from. The right small business loan can help get your new business off the ground. An existing business may need to make upgrades or supplement their cash flow. Whatever the reason, a small business loan can help.
Getting ready for the application process:
There’s a bit of legwork that goes into getting approved for a small business loan. With a little persistence, you can easily qualify. The first thing you’ll want to have prepared is a business plan. This takes your new business ideas and helps bring them to life. A well organized and written business plan can make all the difference in getting approved. If you already have one ready to go, you may want to run it by a colleague or an expert in the field. The second set of eyes can help you miss any information that you forgot to include and even give you some new ideas to incorporate. If you don’t have a business plan prepared you can go about this in a number of ways. If you’d like to make one yourself, you can get tons of information and even courses online. Much of this information is available at no cost. Hiring a consultant or freelance writer to prepare the plan is another option. If you decide to hire someone, it’s of the utmost importance that you communicate clearly and thoroughly with this person. Once you have a solid plan, you can create models, a presentation, and anything else that will illustrate to a lender how your business will operate.
Other factors to consider before applying:
After you have a winning business plan, you’ll want to check your credit. You can purchase a tri-merged credit report online. This provides you with a FICO score and is most likely what the lender will use to score your credit. There are free credit reports available online as well. The credit bureaus will provide a report if you haven’t received one within the last year. Also, there are many websites that will provide you with a free or low-cost report. If you prefer to keep an eye on your credit on a continual basis, you can purchase a credit monitoring subscription.
What to do if you have credit issues:
If you have a few negative marks on your credit, it most likely won’t prevent you from getting approved. If there are items like judgments, foreclosures, or collection accounts, this might put a damper on things. If at all possible, it’s best to pay the full balance to clear these items up. If it’s not possible, you may want to hire a credit repair company to help you dispute the items. If you’d like to file disputes on your own, you can do so directly with the credit bureaus at no cost. They’ll most likely ask for documentation to support your claims. After you’re able to resolve these issues, you’ll be one step closer to a small business loan.
Putting equity into your business:
Most lenders will expect you to make some equity investment in your business. This reduces their risk and shows that you have a vested interest in the business. You may be asked to secure the loan with collateral. This can be done with your home, retirement accounts, and any other valuable assets you may have. Many lenders will also want to make sure you have enough reserves to live off of until your business will be profitable. These requirements are specific to each lender and will vary greatly.
Determining which route is best for you:
Small business loans come in many different forms. A traditional SBA loan provides you with the benefit of a lower interest rate and a guarantee that the loan will eventually be paid off. These loans are reserved for those who have strong credit and financial backgrounds. A business plan is typically scrutinized by the lender and they’ll require you to defend it in an interview. The SBA also provides special opportunities to those who are new citizens and minorities. A local bank will process the loan, underwrite, and fund it from start to finish.
Private equity firms and venture capital firms are better for some borrowers:
If you have great ideas but are lacking in other areas, a private investor may be the best option. These companies will invest in your business for partial ownership. The business plan is the most important factor for them determining whether or not to invest in your business. Existing companies also seek their help to increase their business or pay for new projects. A contract will lay out the specifics of the deal and should be reviewed by an attorney on your behalf. Partial control of the business is usually granted. For those who don’t want to relinquish any control, this isn’t a good option. For those who are comfortable with direction and guidance, this option may be right.
A business line of credit provides you with instant cash:
For those who’ve opened their doors already, a business line of credit may provide you with a flexible option. These loans are underwritten at their onset. The business owner draws on the account when they need funds. The biggest benefit is that the loan is already approved, so there’s almost no waiting period. Repayment is based on the total amount borrowed and the interest that is to be charged. Regardless of whether or not the business uses the funds, they must repay the interest. This option is good for established businesses that occasionally experience downtimes or cash flow issues.
A small business loan is a must-have for nearly every company. They give you the peace of mind that you’ll have the money to support your business. Getting approved is easy with a little patience and due diligence. A small business loan will allow you to worry less about finances and focus on managing your business.