Everything You Need to Know About Getting Business Loans

Small business always require business loans and to generate profits from your ideas, it is necessary to give a practical shape to your ideas. For giving it a practical shape, you will require capital and the capital can come from various sources. One of the main sources of generating business capital is the business loans. If you are using banks for business loans, then you will have to go through a complete process so you can apply for a business loan. Same goes for the other parties who provide business loans.

There are multiple factors that play an important role when you are applying for a business loan to run your business efficiently. Moreover, there are multiple types of business financing out there including business loans, loan for equipment purchases, cash advance, equipment lease and mortgage loans. When you are thinking of getting a business loan, you must focus on few basic factors that will help you create an amazing loan application.

We are here to share few important factors that will help you get a business loan for your small business. Let’s have a look at how you can apply for a business loan and how you can get your application approved.

Understand the types of business loans

The first thing that you need to focus on while applying for the business loan is to check out different types of business loans available. If you have not done your research, then you will be missing out on plenty of things. It is always better to understand different types of business loans that you can avail. Most common type of business loans includes a small business line of credit, working capital loans, small business term loans, account receivable financing, equipment loans and small business credit cards. If you are preparing a business loan application, then you must keep these types of business loans in your mind.

Focus on your credit and risk profile

Whenever you are applying for a business loan, you must focus on few basic things that will help you in the right way. You need to focus on your credit score. Make sure that you have an excellent credit score so you can find the right lender. Lenders will view your credit and risk profile before approving your business loans. Lenders will review your credit reports and credit scores all over. Moreover, they will also check out the outstanding loans and debts. Moreover, they will also check out the time you have spent in the business. If your business has been operating for several years, then you will have more chances of getting the business loan.

Get your financial statements in order

Make sure that you are focusing on all of your financial statements and getting them in order. Your accounting records will be reviewed before approving the loan application. You should have all the statements if you are planning to apply for a business loan. Lenders will always prefer the statements that are audited by the certified public accountant. If you have audited documents, then it will become easier for you to get a business loan.

Search for the lenders

Just like different types of business loans, there are different types of lenders as well. However, when you are looking for a perfect lender, then you will have to start your research and check out your options. There are direct online lenders who are willing to invest in the small businesses through the easy online process. Then, you can check out the large commercial banks and local community banks. By checking out these options, you will be able to find the right one for your needs. Once you have done your research and find the perfect option, then you can proceed to the next step.

Focusing on your loan application

When you are focusing on your business loan application, then there are few basic things that you will have to consider. First of all, you need to put all the information that the lender requires from you. Make sure that you are providing exact information without any tempering. Moreover, you should decide on the money you want to borrow from the lender. If you have some specific requirements, then you must prepare your proposal accordingly. After that, you will have to determine what guarantee you can provide to the lenders. They will require a guarantee before approving the loan.

Analyzing your business loan proposal

At the end, you will have to analyze the business loan proposal that you have created. Make sure that you are focusing on the key terms of the proposal and double checking the details. After detailed analysis, you will have to submit your proposal to the lender. Make sure that you are exploring all of your options when you are about to get a business loan for your small business. There are multiple lenders who are willing to invest in the small businesses.

Questions to Ask Before Taking a Small Business Loan

Businesses are built on capital. You need Funds for hiring employees, purchasing machinery and equipment, marketing, sales, and what not. This is the reason why so many entrepreneurs and even seasoned businessmen take small business loans from time to time to fulfill their financial requirements.

If you are planning to take one, be sure to ask yourself the following questions first:

  1. Do I Really Need This?

It is such an ordinary question, yet it is probably the most important of all. Debt is not always bad. However, the thing to remember here is timing and requirement.

What do you need the loan for? What’s the purpose? If you have tonnes of purchase orders that you can’t meet with your current revenue, then getting a loan will be a good idea. This is because it will help you increase the profits and expand your business. However, if you want a loan to get a better office space, or for buying equipment for future business expansion, then maybe you should reconsider.

  1. What’s my Credit Score?

Gone are the days when business loans could be availed on the basis of goodwill alone. These days lenders take all kinds of measures to minimize the risks. One of these is the credit history of the applicant.

No matter which bank or NBFC you will apply for the loan at, they are going to check your credit history. If it looks good, you will get the loan. However, if it’s not, then the odds are low. Best case scenario- you will get a loan at a high rate of interest. However, it can actually do more harm than good.

It’s highly recommended that you check your credit report before applying for a loan. If your score is below average and if you are not in a hurry, you can work on it first and make improvements. Once you have accomplished that you can get a loan easily and at an attractive interest rate too.

  1. How Much Money Do I Need?

There is a popular misconception floating around that a lot of money can solve all your problems, including the business problems. However, that is not really true. This is because the money you get in the form of a loan comes with several conditions. For starters, there is a high rate of interest linked to it which can make a big difference. Also, more money also means a longer term.

Ideally, you must get a loan that’s enough to increase your return on investments (ROI). If the loan is actually going to reduce your ROI then you should reconsider the entire idea itself. Also consider the fact that you will be paying EMIs every month which will be, of course, deducted from the cash flow. Plus, you need money for staff salaries, utilities, rent, inventories, and what not. The bigger is the loan amount, the bigger will be EMIs. So, be sure to see that you have enough left after dealing with all these expenses.

  1. How Long Would It Take me to Repay?

The term of the loan is something you must consider carefully. As long as you are in debt, you would need to take out a portion of the revenue every month. So, choose a term with regard to your business projections. Do you think you will be able to sustain your current cash flow after the loan, or would you need more time so as to prevent financial stress? These are some of the things to think about before making any decision.

  1. What are the Prepayment Charges?

Say, you obtained a loan for a term of 5 years. However, your business did well beyond your expectations, and in 4 years you have enough money to repay your entire debt. So, you go for it, only to find out that you have to pay a hefty fine in the form of prepayment charges.

Save for a few exceptions, banks usually charge you for repaying your loan prior to the actual completion of the term. It is best if you can find a lender that doesn’t have any such condition.

Business loans are often the best option for raising capital for your business. However, there are other options too, such as invoice financing, equity sale, etc. which you can also consider.