Whether you’re looking to get a brand-new venture off the ground, or are already running an established company, every business can use a little assistance from time to time. You know you need a loan, but where do you start? Read on for some simple steps to follow to secure funding for your business.
Determine What Type of Loan You Need and What It Will Be Used For
If you are just starting a business, chances of securing a loan can be slim – at least within the first year or so. Lenders often require business loan applicants to have cash flow for repayment purposes, which just-getting-started companies don’t yet have. Startups may have to turn to other borrowing options like friends/family, credit cards, and personal savings for cash. For established businesses that have over a year under their belts, there are generally more choices available. These include SBA loans, traditional business loans, business lines of credit, equipment financing, and merchant cash advance. The type of business loan you apply for will largely depend on how much money you need to borrow and what it will be used for. Some businesses may need money to expand or purchase equipment, while others may just need some extra funds to help with a temporary cash-flow problem. Before you even begin the application process, creating a business plan is highly recommended. This will help you determine exactly what the money needs to be used for and that it is absolutely necessary to borrow. In addition, having a business plan will help you show lenders you’re a good candidate.
Get Your Affairs in Order
Just like with personal loans, you need to be a qualified applicant for lenders to grant you a business loan. The better you look on paper, the greater your chances are of receiving the requested funding. So get your affairs in order prior to applying. Take a look at your personal and business credit history, which includes your credit score, payment history, age of accounts, and how much credit you’ve used. If your credit can use some work, waiting to begin the application process could be beneficial. Taking the time to get your credit in great shape now will help you secure the funding you need to drive your business forward. In addition to credit history, there are other factors lenders consider when evaluating loan applications. These include, but are not limited to, cash flow and collateral. If you’re an established business owner, lenders will look at past sales and expenses for your company. If you don’t have a business yet, lenders can look into how well you manage your personal finances as a gauge for how responsible you’d be as a business owner. Most financial institutions require collateral – some type of asset you can put up to guarantee their investment in the event of non-payment. Examples include personal or business income or savings, or your home/property.
Do Your Research
Not all lenders are created equal. Just as you would when looking to purchase furniture or a new car, do your research. Different lenders can offer different types of business loans. Some are more established than others. And of course, loan rates and repayment terms are important. When doing your research, make sure you look at how long the lender has been in business, how reputable they are, if they have a recognizable brand, a legitimate website, and be sure to read the fine print on the loan types they offer. Also, if being able to meet with the lender in person is important to you, you should select one that has a local office. Once you’ve narrowed down your search to a few lenders, make a list and map out the specific loan you want to apply for. Also, make sure you know all the documents you need so you’re well prepared once you start the application process.
After you’ve done your research and have all your affairs in order, all that’s left to do is apply!
To Sum it Up
If you are in need of business financing, business loans are a great option. It is important though to fully understand your specific business need so you can identify the best loan for your situation. Drafting a strong business plan, ensuring your credit is in great shape, and doing extensive research into potential lenders are all steps that will help make the application process go smoothly.