How to Prepare for Taking Out a Small Business Loan
Getting a small business loan is often a major hurdle that small businesses face, mainly because of the strict lending standards put in place by banks. But, obtaining some outside funding is often necessary to get a business started or facilitate business growth. In the early stages of business, it’s not uncommon for business funding to be required to cover regular business expenses like inventory and payroll. Although finding, applying to, and getting approval for a small business loan is not always easy, the more prepared you and your company are, the better.
Why Do You Need the Loan?
First of all, it’s important to know exactly why you need to borrow money for your business. When you need help with your short-term financing needs, lenders will ask this question to find out exactly what you need the money for. Typically, you will need the money for one of these common categories:
- Getting your business started
- Covering day-to-day business expenses
- To grow or develop your business further
- As a financial safety net
Figure Out the Type of Loan You Need:
Once you have determined why you need outside funding for your business, it will become easier to decide on the type of small business loan that you get. Bear in mind that if you are starting a business, it’s almost impossible to get a business bank loan during your first year of trading, since banks will need records of your cash flow in order to support loan repayments. If you want to finance a startup, you might have a better chance of success going through a dedicated small business or startup lender, an angel investor, or a business credit card.
On the other hand, if your business has at least a year’s worth of financial history and revenue, you will have more financing options to choose from including term loans, lines of credit, and SBA loans.
Determine The Best Lender for You:
The type of finance that you need and what you are eligible for will help you determine the best lender to approach. You can get small business loans from many different places, including banks, online small business lenders, and micro-lenders. There’s a range of products including lines of credit, short-term loans, and more. You should approach small business loan shopping just as you would shopping for any big purchase, such as a car. Once you’ve decided on which type of lender and type of finance is right for your business, compare a few similar options based on factors such as annual percentage rate and the terms. Choose from the loans that you qualify for based on the lowest APR and how easy it will be for you to handle the regular repayments.
Consider Your Credit Score:
If you are looking for financing for a brand new business, then bear in mind that your personal credit score will be taken into account, along with factors such as the length of time that your business has been trading. It’s worth checking your credit score before you apply; you can do this for free from several credit card issues or through the major credit bureaus for a small fee. If your credit score could be better, then it might be worth taking some time to improve it before applying for small business financing by paying off any personal debts that you owe; remember that these will be taken into account when you apply for funding for your small business as they may affect your ability to repay.
For most businesses, getting funding is essential to getting off the ground. Whether you need funding to get your business started or to help it grow, being prepared for the process is crucial.