Factors to Consider When Getting a Business Loan
Getting a business loan is not always easy. There are many things that need to be considered. Not all lenders are lenient enough to disregard a bad credit score. In most cases, a credit report is taken into account.
Here are amazing tips and guidelines on how to get a business loan that can help you with your business needs:
- Your credit score
This is the most important factor that you need to consider when planning to get a loan. Credit scores are numerical reports that represent an individual’s creditworthiness. A person with an excellent credit has higher chances of getting a good loan deal.This does not mean, however, that an applicant having a bad credit history cannot get a good loan deal. Everyone can get a fair chance of getting a good loan deal. There are lenders and types of loan that do not require an excellent credit score. All you have to do is diligently source for them.
- Analyze why you need a loan
Before getting a loan, the borrower must first analyze the financial statements of the business. This includes revenues coming in and expenses that are going out. If your financial report concludes that it can your revenues can support the furtherance of your business, it would be best to refrain from taking out a loan. However, if your financial report strongly suggests for a loan, ask yourself why you needed the loan.Know the purpose of the loan. Make sure that the purpose is achieved when you get the loan. This way the loan can help grow the business.
- Know how much you need to borrow
Since you have analyzed your financials, you would be able to know how much you need to help your business get through rough times or expand your business. Know the amount that you need. The loan amount should be an amount that your business can repay for a specified term.
- Know what kind of business loan suits your needs
There are a variety of small business loans you can choose from. Each one has its own requirements and benefits that may be advantageous for you and your business. The type of business loan depends on the terms and conditions, the purpose of the loan and the length of repayment.Small business lines of credit are funds which a borrower can access at any time he or she may need it. This type of loan has a maximum limit, which must not be exceeded. When the line of credit has been used, it must be repaid first before the borrower can loan again. The period for repayment is fixed and the loan amount must be paid within that specified time. When the repayment is not made on time, an additional fee may be charged.Accounts receivable financing is a kind of small business line of credit whereby the loan is secured the accounts receivables of the business. The loan gets paid as the accounts receivables are being paid by your customers.
Another type of business loan that might help your business grow is the working capital loan. This type of loan is availed to manage fluctuations in revenues and expenditures. This type of loan may be secured or unsecured. For a secured working loan, business owners may need to pledge their property as a collateral. The amount and period of repayment vary as well.
Small Business Administration loan is another kind of loan which small business owners may qualify for. These are loans guaranteed by a US government agency. In most cases, this type of loan has more flexible and favorable terms and policies.
One of the most common kinds of financial assistance that companies use is the small business credit cards. This is a short-term financing that can be used for business emergencies. With this type of loan, the owner is typically a co-borrower to the business.The interest rate varies depending on the credit card issuer.
These are just a few of the available types of loans that business owners may qualify for. Remember to scrutinize both the pros and cons of every type of loan before applying for one.
- Shop for lenders
There are a lot of lenders who are willing to give out loans. There are lenders who offer traditional bank loans. These are usually large commercial banks who process secured loans or offer loans to those with excellent credit scores. These are loans accompanied with a lot of paper works.There are direct online lenders that provide fast cash. Most of these online lenders process loans faster than traditional lenders. They also have fewer requirements compared to other lenders. Also, they do not typically require a collateral and are usually short term loans.Another kind of lenders is that which is backed or guaranteed by Small Business Administration. This is a US government agency that guarantees the loan in order to facilitate a faster and easier way of applying for a loan.
There are a lot more kinds of lenders who can give financial aids to business owners. Your aim here should be to collect different loan offers from different lenders. Once you have a list of competitive loan offers, you can choose which lender has the best loan offer.
- Prepare the necessary requirements
Aside from the credit score, the borrower must prepare a few requirements. One of which is the record of outstanding loans if there are any. Alongside this requirement is the record of the cash flow of your business.A list and documents pertaining to the assets of the business. This is one of the particularities that lenders look into when offering a loan to business owners. This may act as security in the event that the borrower may default on any repayment.Investors in the company should be taken into account as well. Any documents regarding investments must be submitted to the lender. This may help borrowers get higher loan amounts or flexible payment terms. Having credible or stellar investors may act as guarantees that the business is able to pay the loan.
Another thing that borrowers must prepare is the financial statements of the business. This includes the annual revenue of the business. With this reports, the lender can come up with the most ideal loanable amount for your business.
- Get into the loan terms and conditions
While it is true that getting a loan can be difficult, this is not enough reason for you to jump into the first loan offer you get. Analyze and evaluate the terms and policies offered by different lending institutions.A low interest rate does not mean the best offer. You may not notice but a low interest rate may have a longer term. At the end of the loan contract, you will notice that you had paid more.The same is true when a loan contract has a shorter term with a high interest rate. It is best to study every offer and get the loan with flexible terms. In relation to this, know whether there are hidden or additional charges that may be incurred in case of default. Know the amount of additional fees to assess how it may affect your business.
These tips and guidelines can help you get to the bottom of your loan application. There are other factors that you may consider but this basic know-how can help you determine how to get a business loan that will suit your needs.