Business owners often need funding to start-up or spur the growth of their companies. However, the process of acquiring a loan can often appear complex and daunting. Here are the simple steps you need to take to obtain a business loan.
Determine the Right Loan Type
There are several types of business loans that might meet your needs. For instance, traditional bank loans and loans backed by the U.S. Small Business Administration have high borrowing limits. There are also loans for particular purposes such as purchasing vehicles and equipment. A line of credit allows you to draw funding when you need it to meet company expenses.
Assess Your Qualifications
You can only obtain a business loan if you meet the lender’s requirements. Lenders will want to know your credit score, how long your company has been in operation, and whether you earn enough revenue to make regular payments.
Consider Your Available Collateral
If you can put up collateral, you may be able to borrow more at a reduced interest rate, but of course you risk loss of the collateral if you are unable to repay. Possible collateral for a business loan includes real estate, equipment, vehicles, inventory, and accounts receivable. Lenders also often ask for your personal guarantee, which means you risk losing personal assets if the loan is not repaid.
Calculate Affordable Payments
Consider your company cash flow and calculate how much you can afford in regular loan payments. Your business’s income should comfortably exceed your expenses, which should include the proposed payments for the loan.
When you apply for a business loan, you will need to submit a number of accompanying documents. These will include your company’s business plan, articles of incorporation, franchise agreement, and commercial lease. You will also need to present financial statements, bank statements, and personal and business tax returns.
Find the Right Lender
Apply for a bank loan if your credit is good, your company has been operating for two years or more, and you can afford a lengthy approval process. Nonprofit microlenders are possibilities if you don’t qualify for a traditional loan and you only need a small amount of funding. Online lenders can assist you if you don’t have collateral and you need financing right away.