A business loan is a regular procedure for any type of business owner, but especially for those launching startups. If your father is not a millionaire then you probably won’t have enough financial resources to start a business from scratch.
Of course, you may call your friends, or make a shared company, but during the tough times, you’ll still need financial support.
Here’s when a business loan comes in handy. Forget everything you heard about it (especially, the bad reviews!), because this type of loan is not painful at all if you do a little homework.
This way, you’ll increase the chances of approval, and find a perfect small-business loan to fit all your needs.
We’ll help you to figure out how to get a business loan in just five steps. Stay tuned!
Decide on a Type of a Loan
The type of business loan depends on the goals you’d like to accomplish.
It might be:
- a business expansion (then, you’ll need a lump sum of up to $5.5 million);
- covering daily expenses (such as payroll or unexpected repairs),
- gathering funds for a startup (for this scenario, business credit cards, and personal business loans are the best choices).
Remember to educate yourself a bit; check out the best app to get cash advance to find a reliable tool for your finances. Check if the lenders offer specific products to fit a growing company’s needs, such as loans for equipment or vehicle purchases.
There’s a whole new world underneath every business goal, so you need to weigh the priorities and find what’s best for your business.
Compare Small business lenders
Funding speed is not the only factor to consider when choosing a lender. We mentioned that to remind you not to believe everything you see on Google.
Do your research; dedicate, at least, some time to it. When your business and employees are at stake, there’s no need to rush to the very first lender.
Compare the different lenders to find out how they operate with:
- the loan amount — determine how much can you get at once;
- the additional rates — do they charge origination fees; what’s the APR they align to; is an interest rate flexible or fixed;
- approval time — review what documents the company will ask from you, and how long the approval process takes.
Requesting a business loan from online lenders is a good choice when you have no collateral, you’re new to the business, and you need money on account fast.
In case you have a good credit history, and you don’t need money fast, you can apply for traditional bank loans. These options include term loans, lines of credit, and commercial real estate loans to buy properties or refinance.
Find Out If You Qualify or Not
A few recent studies revealed that borrowers, who are more than 90 days delinquent, and still aren’t paying their debts. The Philadelphia’s Consumer Finance Institute said, that of those 474,071 borrowers in loss mitigation, 72% aren’t paying.
The “Mortgage Loss Mitigation and Delinquency” statistics show even sad numbers considering the rising number of foreclosures.
The number of unclosed debts is the primary reason for a lender to review your supportive documents. You should also ask yourself the following questions to know if you’re a reliable candidate, and evaluate your potential from the lender’s background:
- What’s my credit score? Typical for banks, online lenders, and microlenders. Even if they give money fast, nothing forbids you to check on your credit history. The reports you can get at one of the three credit bureaus, are Equifax, Experian, and TransUnion.
- How long am I in business? You need to have been in business for at least one year to qualify for most online small-business loans and at least two years to qualify for most bank loans.
- How much money do I make? How fast can I repay the loan? Most lenders will ask for at least the amount of your annual revenue, which ranges from $50,000 to $250,000, for business loans.
If one or a few criteria don’t show the desirable outcome, consider the alternative options to fund a business. Or hire a good financial advisor to help you sort things out.
Weigh Your Options for No-Collateral Business Loans
You are potentially a great candidate for a business loan if you’ve been in this niche long enough. Most lenders are suspicious of young entrepreneurs, who are just starting because they can quickly throw away a business plan and reject the idea, in case something goes wrong.
Don’t show how reckless you are in front of the lenders. If you have nothing to serve as collateral, think about the specific types of loans, including the Small Business Administration (SBA) 7(a) loans, SBA Disaster loans, and Term loans.
The mentioned options are great if you experience significant financial losses (and therefore cannot qualify for a typical business loan), or you need working capital to start from.
Determine the Affordable Payments
Review your business’s financials and evaluate how much you can afford to apply toward loan repayments each month. For example, your total income should be at least 1.25 times more than your expenses, including your new repayment amount.
That’s something financial experts advise, to be sure you will be able to repay the loan on time.
Let’s say, your total income today is $15,000 per month. It’s 1.25 times $12,000 of your expenses. If you already pay $10,000 for rent, payroll, and other costs, you’ll have $2,000 left as a repayment amount.
Some online lenders require daily or weekly repayments, so make sure to factor that in — you’ll need enough cash flow to make payments at the time they’re due.
Requesting a business loan can seem like a tough operation. On the other side, it just needs time and practice. Nobody is going to give you money unless you prove that you have enough expertise and resources to return it later.
Outside of regular SBAs, businesses can obtain loans with no collateral: for example, to cover financial losses, or accumulate working capital. Loans without collateral may have higher interest rates and strict repayment terms.
Whatever you choose, remember to take smart risks only, and think not only about yourself but also your team.