How to Get a Business Loan
You’ve got a big business dream, but how do you pay for it? Let’s take a look at the steps involved in getting a business loan. First off, how much money will you need? Do you need a lot or a little to make your business go? Next, how do you plan to use the money? Having a clear plan for using the money is an essential part of a business loan application. So take a close look at your business plan and how the business loan would fit into your greater plans for the company. Be ready to share your business loan pitch to a lender. You’ll also need to research possible lenders with care. You want the best loan terms with your business loan and you’ll need to learn about loan requirements from potential lenders.
What kind of business loan do you need? There are plenty of kinds to choose from. A business loan could be a bank loan, a U.S. Small Business Administration (SBA) guaranteed loan, a business line of credit or an equipment loan. There are also different types of business loans to consider, installment loans and business lines of credit. With an installment loan, you get the money in a lump sum and repay it over time, making fixed monthly payments. With a business line of credit, you can borrow up to a set limit. And you can pay off the balance on the line of credit each month or carry the balance over. As you pay off the line of credit, you can borrow up to the limit again without reapplying for credit.
Do you need a short-term or long-term business loan? Short-term business loans last just six months to 24 months. Are you going to need the money for a longer term than that? Long-term business loans typically last three years or longer.
Should You Choose a Secured or Unsecured Loan?
Secured business loans require you to put up collateral. What is collateral? Collateral is something pledged as security for repayment of a loan. With a business loan, collateral could be a piece of equipment or a business vehicle. If you are unable to repay a secured loan, the lender takes the collateral. So only choose a secured loan if you are confident about making the loan payments. You don’t want to lose that collateral.
In contrast, unsecured loans don’t require collateral. So you don’t have to worry about putting anything upfront when applying for the loan. Unsecured loans also are easier to qualify for but they do come with higher interest rates.
So weigh the pros and cons of secured and unsecured loans carefully. Which is best for your business? Does the lower interest rate of a secured loan appeal to you? Or do you like the ease of applying for an unsecured loan?
Where Can You Get a Business Loan?
There are all kinds of options for business loans. You can get a business loan from your bank or credit union, from other banks, from nonprofit and community organizations and from online lenders.
How Much Do You Need to Borrow?
One of the first things to determine when thinking about a business loan is how much you will need to borrow. As with any loan, you’ll want to borrow the minimum amount necessary. Do you need the loan for a short-term business project or a long-term business project? What is your best estimate of costs? Lenders like to see that you have a plan for using the money. Don’t forget to calculate how the loan payments will fit into your business budget. You want to be able to make those payments without a hitch.
Check Your Business Credit Score
There are two types of credit scores, personal and business. If you are applying for a business loan, you will want to make sure your business credit score is in good shape. So get a business credit report and correct any errors. An error could hurt your credit score so correct it as soon as possible. Reach out to Experian, Equifax or Dun & Bradstreet for business credit reports.
Get Required Loan Documents
For a business loan, a bank may ask for an income statement, balance sheet, cash flow statement, three to five years’ worth of financial projections, business bank statements and business tax returns. A bank also may ask to see a business plan.
The Value of Collateral
When you put up collateral, it makes it easier to get a business loan and the money borrowed comes at a lower interest rate. Collateral for a business loan could be equipment, vehicles, machinery, real estate or inventory.
Shop Around for a Business Loan
To get the best deals on business loans, you’ll need to shop around. So start with your bank or credit union. They know you best and you already have a relationship with them. Then move on to other banks and online lenders. You want the best loan you can find. So check out several lenders before settling on the one you like the best. Compare interest rates and the amount and terms of the loan.
Reasons to Apply for a Business Loan
Buying assets that have long-term value to your business is a good reason to get a business loan. Know just what your business needs to buy for long-term growth? A business loan can make it happen.
Expanding your business is a good reason to apply for a business loan. Let’s say you’re opening new business locations. A business loan can help cover the start-up costs of these ventures. This is another good reason to get a business loan.
To help with cash flow is another positive way a business loan can help with your business. If you have customers who take a long time to pay, having a business line of credit can help smooth out the gaps in cash flow.
Building up your business credit is another reason to apply for a business loan. If you are a new business, getting a business loan and paying it back on-time will help to build up a positive business credit score. Be sure to check that your lender reports your loan payments to Experian, Equifax and Dun & Bradstreet.Get Business Insurance Quotes
Looking for More Than A Traditional Bank Loan?
Think you need something other than a traditional bank loan for your business? Consider a SBA loan. The SBA partners with select lenders including banks, credit unions and nonprofit organizations to guarantee part of the business loans that they make to small businesses. These guarantees make lenders more willing to take a chance on a small business. So if you need a little help getting a business loan, consider a SBA-guaranteed loan.
Need a business loan to buy equipment that your company needs? Why not choose an equipment loan? An equipment loan uses the equipment itself as collateral and is paid in fixed monthly payments. You can get an equipment loan from banks, specialized equipment loan companies and from equipment manufacturers.
Do you need to borrow a smaller amount for your business than a traditional bank will lend? Choose a microlender instead. Microlenders focus on smaller loan amounts. Nonprofit organizations offer microloans. So reach out to a nonprofit near you about getting a microloan. They may have just the loan amount that you are looking for.
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Quick and easy tips that every business owner should be doing.