How to Get a Business Loan, And How to Avoid Getting Denied
If you are trying to get a business loan and do not want to be denied, here are some important tips on how to get approved.
Over 600,000 new small businesses open in the United States each year. For most people, starting a business is something they do to take control of their financial destiny. The first order of business when starting a new business is finding the right funding.
Without a bit of capital to begin your entrepreneurial journey, you will struggle to have success. One of the most common things business owners in need of startup cash do is take out small business loans. Finding and qualifying for one of these loans can be extremely difficult.
Figuring out how to get a business loan will take lots of time and effort. Trying to rush through this process may lead to you getting the wrong loan. The following are some of the things you need to know about business loans and how to obtain them.
Choosing the Right Type of Business Loan
Most newcomers to the world of small business fail to realize just how many different types of business loans there are. The first step in getting financing for your new venture is figuring out what type of loan best fits your needs. Below are some of the most popular business loans and how they should be used.
A Business Line of Credit
If you are unsure about the amount of money you will need to start and maintain your business in the beginning, then a business line of credit may be a good option. This type of loan will allow you to access funds from a bank as you need them. Most lenders will put a cap on the amount of money a business can borrow, which can offer you a safeguard against overspending.
With a business line of credit, you can handle unexpected expenses and manage cash flow with ease. The interest you pay on this loan will be charged monthly. Most lenders require businesses to renew these loans annually, which may cost you additional fees.
Working Capital Loans
Are you looking for a way to financing your company’s daily operations? If so, then using working capital loans is a good idea. If you run a business that is considered seasonal, a working capital loan can help you make it through the lean months of the year.
Most new companies will need some collateral to get these types of loans. Often times, these loans will be based on shorter terms than traditional term loans.
Using a Small Business Term Loan
One of the most popular financial tools used in the small business world is a term loan. These loans will be issued for a particular dollar amount. You will need to make monthly payments on these loans to keep them current.
Before you choose a lender to fill your term loan needs, be sure to check their interest rates and repayment terms. By doing this, you can avoid getting in over your head financially.
Prepare For the Credit Checking Process
Before going in to apply for a small business loan, you need to educate yourself about what lenders will be looking at to approve the loan. The first thing a lender will assess is your credit score and the business’s risk profile.
Not only will the lender look at your credit report, they will also see how many outstanding loans your business already has. Lenders will also look at the assets your business has. In some cases, the lender may want you to put one or more of these assets down as collateral for the loan.
Other factors the lender will check include the length of time you have been in business and your financial statements. Taking a look at all of this information ahead of time can help you assess how likely it is that you will receive a loan.
Pay Attention When Filling Out Your Business Loan Application
The key to getting approved for a small business loan is providing detailed and pertinent information to a lender. Getting organized beforehand can help you fill out your application easily and correctly. This application will require information about your business name and a list of the executive officers you have in place.
Most lenders will also want to see 2 to 3 years worth of financial statements. These statements should include things like income and loss information, as well as a cash flow analysis. You will also need to produce projected financial statements.
With this information, a lender can get a feel for whether or not they can offer you the loan you need. Going into this process disorganized can make getting approved for a loan very difficult.
Consider How Far You Are Willing to Go to Get the Loan
New business owners fail to realize how difficult getting a loan can be. While you may want to get a loan without having to put up collateral or your personal assets, it may be difficult. This is why you need to think about how far you are willing to go to get the money needed.
Most professionals advise new business owners to avoid any loans that require them to put up their own personal assets as collateral. In some cases, you may have to wait for a while before the right business loan presents itself. Instead of getting impatient and signing off on just any loan, take your time to ensure no mistakes are made.
Learning How to Get a Business Loan Takes Time
Settling on the first business loan you come across will often lead to regret in the future. While learning how to get a business loan may be time-consuming, it is worth the effort you invest.
Are you looking for a way to get a business loan with bad credit? If so, check out our blog on this subject.
Author: Hudson Piccini
Hudson Cynar, a Harvard University alumna and the owner of three prosperous enterprises, is a distinguished business consultant, author, and writer. Her expertise spans multiple business sectors, with a particular emphasis on storage containers, commercial copiers, payroll services, and medical billing software. Dedicatedly investing thousands of hours into product and service research, Hudson crafts insightful reviews to guide entrepreneurs in making informed decisions for their businesses.