Getting a business loan is a great way to grow or begin your company, but it can be tricky to navigate the process. Plus, there are some tighter lending standards now than in the past, so it is even harder today. it might feel intimidating to manage these steps but breaking each one down into understandable bites can help you get through the process.
Should You Borrow Money?
There are a few questions you should ask yourself before getting a business loan. For example, consider your credit score. it is easy to get free reports from the major reporting ones. If you have a better credit score, you are more likely to get a great loan and better terms. If it is not high enough, you could turn to a microlender or a lender that offers funds to organizations whose owners do not have good credit.
There are other ways of funding your company as well. For instance, you could offer the necessary funds from your own money. One way of doing that might be to sell your life insurance policy with a life settlement. If you are considering doing so, you can review a guide at Policy Bank regarding the pros and cons of selling your policy.
Typical Requirements Before Getting a Loan
You will want to go over the financial statements of your business carefully, including your cashflow. Then you can think about the amount of money you can put toward your monthly repayments. Depending on the lender, you might even have to make repayments each business day. If you want to comfortably pay it back, you will want to have income that is one and a quarter times more than your expenses.
According to Fastcapital360 you will often need to have collateral as well in case you can’t pay back the money. It is possible to get both unsecured and secured loans from a range of lenders. With a secured option, you will need to have collateral, including equipment or property. And if you cannot pay back the funds, the lender will take possession of it.
It can be risky to have collateral, but it also means the lender might be able to provide you with a larger amount, and it might mean a lower interest rate. Of course, you might have to put up a personal guarantee as well. That the man even if the company can’t pay back the funds, you could be on the hook for that amount. If you can’t, the lender might take your car or house.
Understand Where to Get the Funds From
There are a few ways of getting a solid loan for your new company. That includes banks, online lenders, and others. You’ll want to compare rates from each one to determine the benefits of each. For example, if you do not have collateral or have not been around for a while, you could consider using an online lender. They offer lines of credit and loans in a range of price points, and the percentage rate can vary widely, depending on the size of your loan and the lender.
One of the drawbacks of an online lender is that the rates might not be as low as with a regular bank. Still, it is often faster to get approval, and the funding will arrive sooner than if you used a regular bank. On the other hand, if your company has been around a while and has good credit, you could consider getting your loan from the bank. It is also a good route if you are not in a huge hurry for your funds to arrive. Some of the options offered at a traditional bank can include a line of credit and mortgages for commercial property.
It can be difficult to get a loan from a bank because they do not always have large cash reserves. Plus, if you do not have much collateral or your credit is poor, you might not be as likely to get one from your bank of choice. It often takes longer to get funding from a bank, but they also usually have the lowest APR.
A microlender could be a good option if you do not have a good credit history or you can’t qualify for a regular loan. A microlender often gives businesses short-term loans, less than $50,000. However, the APR is usually higher than with traditional banks. Plus, you will need to provide detailed company information on your application, including financial statements, your business plan, and information on what you will use the funds for. That means it usually takes a long time to apply for one of these. And they are usually best if you do not need that much money. Still, they can be good options for smaller organizations, which often cannot qualify for traditional loans from a bank because of poor credit or no available collateral.
Getting Documentation
Before applying for the funds, it is best to make sure you have the necessary documents. Place them all in one place and ensure you can access them later so you can streamline the process. The lender will determine exactly what you need, but you will likely need a few things such as:
- Tax returns
- Financial statements from the company
- Bank statements
- The legal documents related to your business
- Your business plan
Applying for the Funds
Once you have determined the right lender and loan, you can then apply. You can begin by looking at different options based on percentage rates and terms. Look at the APR as well since that includes the fees, plus the interest rate. It is a great way to determine the total cost of borrowing that money. You will want to pick the one that has a low APR if you can make the regular payments. You can then use your documents to apply. Just understand that your personal credit history might be affected, especially if you are using your personal credit history to apply for this and you will be responsible for paying it off, even if the business fails at some point.
