Taking out a business loan is a great way to give your business the boost it needs. Business loans can be used for purchasing real estate for potentially expanding a business, purchasing the equipment a business needs to succeed, purchasing inventory, increasing working capital, and more.
If you’re a business owner and are just starting out or are looking to expand, then you might be in the market for a business loan.
However, you can’t just walk up to a lender, show them your I.D., and be handed the money. There are requirements for a business loan that every business owner should know about. If you learn about the requirements beforehand, then you have a much better chance of getting what you need for the lender.
To ensure you get the business loan that your business needs, continue reading below. We put together a list of the steps and requirements to follow for a business loan!
1. Know Your Options
The first thing you should do is take a look at what options you have. There isn’t one type of business loan out there. There are actually several, and you should have knowledge of all of them.
Some factors that contribute to the type of loan that you need is the specific terms of the loan, your business needs, and the actual length of the loan. The following are several options that you have, but not all of your options:
Working Capital Loans
In most cases, working capital loans are short-term loans that last around 30 days to 1 year. These loans vary from $5,000-$100,000 and are used as a debt borrowing vehicle. The company uses this vehicle to complete daily operations that finance the business.
Small Business Term Loans
A small business term loan in most cases has a set dollar amount. Use this loan for expansion, business operations, and more. Interest on these loans is paid monthly and can either be fixed or variable.
These loans can also be secured or unsecured and have a principle that’s normally paid off anywhere within 6 months to 3 years. If you own a small business that needs capital for growth or if you need a one-time large expenditure, then this is a great option for you.
Equipment Loans
If you need a business loan to cover the cost of your equipment, then an equipment loan is right down your alley. Equipment loans require 20% of the cost of the equipment in the form of a downpayment. The loan is secured by this equipment.
These loans can cover equipment, software, and even vehicles for your business.
Small Business Line of Credit
When you take out a small business line of credit, you have access to funds from your lender as needed. However, there is a cap on the total amount that you can borrow. A line of credit is a great option when needing to manage your business’ finances or when an emergency comes about.
There’s a fee to open a line of credit, but you won’t begin paying interests until you make your first withdraw. Each year, you’ll need to renew your line of credit and possibly pay an annual fee.
2. Do Your Homework
There are plenty of lenders available to you as a business owner. It’s essential that you do your homework and know what your lender options are. For example, you can now find lenders online.
These lenders will work with you online, making the process easy and convenient. You also have the option of borrowing from your local banks. Local banks love working with small business owners as the money is going back into the community.
Lager commercial banks and peer-to-peer lending sites are other options available for you. Do your homework by getting in touch with each option and asking them any questions that you might have such as interest rates, loan terms, and more to determine which one is right for you.
3. Understand What Matters
Before diving headfirst into the business loan process, understand what matters regarding your own information. Some things that your lender will want to look at include the following:
Business Assets
Having assets within your business is a great way to prove to a lender that you can back up your loan. The more assets you have, the better chance you have at getting the loan.
Outstanding Loans
The more outstanding loans you have, the lesser chance you have at becoming approved for your loan. Lenders will take these outstanding loans into account when determining your eligibility.
Credit Scores
The lender will also take a look at your credit score and credit history report before deciding if they’ll approve you. If you have anything on your credit report that might hold you back from receiving a loan, be sure to clean this up before meeting with the lender.
4. Prepare for the Application
Prepare for the application process as much as possible. The application is going to ask you questions regarding your business, so have all of your paperwork in hand and organized. There are also some loan application questions that you should ask before getting your small business loan, such as which terms you can and can’t accept.
Preparing for the application process before speaking to a lender is the best way to keep the process as stress-free as possible.
5. Review the Terms
When everything is said and done, be sure to review the terms of the loan before making your final decision. Different loans and different lenders have different terms that will need to be adhered to. Consider learning what the interest rate is for the loan and how it might change over time.
You should also know when the principal is due and what are all the costs and fees associated with the loan. Review the terms in depth so you won’t be hit with any surprises down the road.
Know the Requirements for a Business Loan!
If you’re a business owner planning on taking out a loan, then it’s essential that you know the requirements for a business loan and the steps it takes to apply for one. We hope that this guide was helpful. Follow these 5 steps above and your business will be on its way to success in no time!
