Do you have a good idea for your business but have trouble with financing? Getting a small business loan can help. Loans vary with terms, rates, and repayment schedules. It's best to be prepared when applying for one, and here are some things you should know before starting the process of applying for a small business loan!
-Loan Amounts: Banks will want to make sure that the loan amount requested is appropriate for the company's financial information and creditworthiness without putting their lending capital at risk.
-Secured or Unsecured: A secured loan is an amount of money borrowed by using valuable property as collateral. For example, a business owner can borrow money to purchase machinery or equipment by using the machinery as collateral. An unsecured loan is an amount of money borrowed without using any collateral.
-Interest Rates: Interest rates on small business loans vary, and depend upon the financial information and creditworthiness of each applicant. Banks look closely at the owner's income and assets to determine their ability to repay the loan. Some small business loans will have a higher interest rate than others, but also provide more flexible repayment options.
-Application Process: The first step in applying for a small business loan is to speak with the bank or lending institution's loan officer. This person will assess your company's financial situation and creditworthiness. If the initial meeting leads to the development of an application, you will receive preliminary approval, and then sign a promissory note. After you have signed this note, the lending institution has agreed to make the loan to your company. When you receive the actual loan, it is a valid promissory note and binding contract.
-Repayment: This is the term for making payments on the small business loan. Interest must be paid on the loan each month. The money owed can be less than or greater than the initial amount of loan received, and based upon your company's repayment ability to a lender. Because interest rates vary based on whether you have collateral or not, it might be wise to consider flexible repayment options when applying for a small business loan..
-Repayment Schedules: most small business loans require repayment over a period of time, usually with monthly payments. The length of time needed to repay the loan will depend upon your company's financial situation and creditworthiness. Some loans may have a balloon payment: that is, if you don't make your monthly payments within a specific time frame, the amount owed will be ballooned to the amount you had originally borrowed.
-Factoring: Factoring is when a business sells accounts receivable for cash up front. This payment will be used to help cover current expenses and to reduce the amount of financing needed from other sources (such as a small business loan). The business will make payments over a period of time depending upon their needs, then factor the balance owed on their accounts receivable.
If you're looking for a small business loan, you'll want to do some research on your options before applying. Consider the amount that you will be borrowing, the average interest rates offered by banks, and potential collateral and repayment options. The best small business loans will be based upon your financial information, and the business's creditworthiness.
With the right combination of small business loan options and repayment schedules, getting a loan can help you expand or start a small business!
5 How do I qualify for a small business loan?
If you do not have credit, it is a good chance that you will not qualify for a small business loan. However, if you work with the right lenders, they can find the best avenues of providing lending to your small business. It is important to remember that there are an abundant amount of funding sources available out there but it might take some time and research to find the right person or company for your needs and what you are looking for in terms of your business.
There are five main criteria that lenders consider when evaluating applicants:
Credit score – In order to qualify for a loan, you must have a decent credit score. It is important to remember that you do not need a perfect credit score in order to be considered for a small business loan. There are ways to build up your credit even if it may already be in the low or mid-range. You can start by paying off your past due accounts and by making sure to always make payments on time every time.
Collateral – If you do not have a decent credit score or if you do not want to put your personal assets on the line, there are other options available to you. In order to qualify for a small business loan without collateral, you will need to build up your business credit report by building your personal credit score first. If this does not work for you, there are other options available as well such as putting up someone else's collateral or securing a co-signer. Once you have found the right lender, they can help you figure out the best way to guarantee your loan.
Rate of return – If you are looking to borrow money in order to start a business, the lender is going to want to make sure that it is at least worth their while. Lenders will look at things such as profitability of the business and how quickly is it growing.
Business plan – Just because you have a small business loan does not mean that you do not need to plan ahead for the future. Even if all your plans are for the short-term, it is important to show how you are going to return the loan back as well as a solid, workable plan for growing your business over time. When you work with a lender, they can help you prepare a business plan that will meet their criteria.
Customer satisfaction – It is important to know that even if you do not qualify for a small business loan, there are still options available to help your business succeed in the long-term. Lenders are always willing to lend money to people who have been in business for quite some time and are successful. If you are still struggling to get started, there are other options available to help you.
When looking for a small business loan, it is important to remember that your credit score is more important than the amount of collateral you have. Even if you do not have any collateral or a decent credit score, there are other lenders that may be willing to work with you and find the best way possible to earn their money back while helping your business succeed.