Getting a business loan can be an important step in growing your small business. Loan terms, rates and qualifications vary by lender and loan product, so it’s important to be well prepared.
Developing a repayment plan and preparing for meetings with lenders can help reduce stress, expedite the process and improve your chances of approval. Follow these small business loan tips to ensure you’re prepared:
Know Your Needs
As you consider financing options, be sure to identify how much funding you need. You can use a business loan calculator to determine the amount of financing you require. Since you will owe interest on the money you borrow, it’s important to only borrow what you need.
Business loans can help you get your business to the next level, boost cash flow, purchase equipment or consolidate debt. They can also be useful for bridging cash flow gaps during seasonal slowdowns or when your business encounters an unexpected opportunity.
Most lenders will review your personal credit score and your company’s financial history to determine your risk level as a borrower. You can improve your chances of getting a business loan by focusing on boosting your personal and business credit scores, improving your debt-to-income ratio and making sure your cash flow can comfortably cover periodic payments. You can also seek out alternative lending sources that focus on small businesses or those facing systemic barriers to funding.
Do Your Research
If you’re thinking about borrowing money for your business, it’s important to do your homework. This includes learning the different types of loans available, their requirements and terms. You’ll also want to understand how each type of loan impacts your bottom line. For example, lenders may only lend to businesses that have a clear business plan and a good track record of paying back debt.
Additionally, if you’re applying for a small business loan through a bank or an SBA-backed lender, your personal credit score matters more than the size of your business. To improve your chances of getting approved, focus on paying bills on time and minimizing the use of your credit limit.
If you’re looking for alternative forms of financing, consider using a peer-to-peer lending site to connect with investors. These sites are often easier to qualify for than traditional lenders. In addition, they offer competitive interest rates that can help you save money.
Don’t Be Afraid to Ask Questions
You should never be afraid to ask questions, especially when it comes to your business. Often, people avoid asking sensitive questions because they’re worried about appearing unprofessional or that the person they’re talking to won’t want to hear their question. However, that fear is usually overblown.
Having the right information and being proactive in negotiating your loan can help you get the funds you need. You should also carefully review your loan contract and ask your lender any questions you have before signing. It’s also worth considering hiring a small-business attorney to review your agreement.
There are many lenders out there, including traditional banks, online lenders and microlenders. Each lender has its own eligibility requirements, and it’s important to understand those before applying. For example, some microlenders require a higher credit score than others. In addition, some lenders have different requirements for annual revenue, which can be a key factor in approval. Some lenders also have different repayment terms, which is another factor to consider.
Consider Alternatives
Alternative business lending is a financing option that can offer a more efficient process than traditional bank loans. These lenders specialize in providing credit solutions for small businesses and typically have more flexible qualification requirements, shorter application periods and faster funding times. They may also have different fees, terms and conditions than traditional business financing sources. Microloans, business lines of credit and other forms of alternative lending can provide a quick financing solution when you need it most.
Keep in mind that you’ll have a better chance of being approved for a loan if your business is generating revenue and you can demonstrate the ability to repay. If you’re struggling to boost your business’s revenue, try working with a SCORE small-business mentor or invest in a credit repair service to help improve your personal and business credit scores. Beware of lenders who charge up-front application or processing fees. It’s best to shop around for the most competitive rates.