Getting a business loan is bit of challenge for some people and so today we are going to talk about how to get a business loan. There are so many options out there from so many different types of lenders if you feel overwhelmed, you are not alone so I want to break it down here for you and help you understand how to find the right business loan for your business.
Table of Contents
Settle on the type of business loan you want.
So first of all, you have to think about what type of loan you are looking for. is it short term? or is it long term? How will you use the money, that makes a big difference because a short-term loan may be easier and faster to get, but it may not solve your capital needs.
How lenders will access you before give you a business loan
Now you also want to think about how a lender is going to view you, so what are they going to look at in your application before you will be able to get a business loan. Many lenders do look at credit scores, not all do. Many of them do look at the owner’s personal credit scores, so if you don’t have great credit, you may still have options out there. However, if you’re looking for a traditional bank loan which in many cases is often the best money you are going to get, you will expect that the lender will want to do a credit check on the owner. Term loans and credit lines fall under the same category. Like a credit card, a line of credit allows you to borrow up to a certain amount and repay it over time. Term loans are loans where you borrow a fixed amount of money for a set period of time, say $320,000 for three years, and you make payments until you pay it off.
The traditional lenders they do often check credit. Almost every lender is going to ask about your time in business, they want to know when your business was established two years is almost like a magic number for many lenders that if you’ve been in business for two years, that counts in your favor. But if you are a younger business, you may be able to get financing primarily based on the revenues of your business. And that factor may become less important. Financing like invoice factoring or invoice financing may also be available to a younger business.
Now, if you have partners in your business. It’s possible the lender may require credit checks on each of the owners and the owner have a 20% or more interest. This varies depending on the type of financing that you’re looking for, but certainly if you’re looking at for an SBA guaranteed loan, they will require a credit check on owners of 20% or more credit, so make sure that you and any other owners in the business are transparent about your personal credit situation. If you’re going to get financing.
Your line of business
Now the other thing you’re going to have to think about is the industry that you’re in. Some lenders won’t lend into certain industries and they will lend into others. Now the way many lenders identify this is through something called SIC or NAICS code. Standard Industrial Classification System code or North American Industrial Classification System code, they’re similar. NAICS is newer, and it’s more in depth. So often, this code will appear on your business credit reports, so if you haven’t checked your business credit reports you want to check those because this code could make or break an application.
The revenue you make from your business
This is becoming increasingly important. Now, in today’s environment. Many lenders will require you to provide business bank statements, they’re going to analyze your revenues. In addition, before they finalize that business loan and give you the money, they may actually ask to link to your bank account, so that they can verify recent revenues and look for things like low balance days bounce checks, other financing that maybe you haven’t disclosed to them on the application, etc. This is extremely important. If you do not have a business bank account. That should be your first order of business, after you finish reading this article. If you need a business bank account and you need to make sure that that’s up to date and that you’re using it exclusively for business activity. This can help you get additional financing.
Before you get a business loan, some lenders are going to require collateral, some won’t, it varies depending on the type of lender. So then how do you find the right lender for your business this can be tough. There are a lot of different financing sources out there for small business owners all trying to buy for your business, and the types of financing that are available can be difficult to decipher or confusing if you’re not used to them, you may not understand what a cash advance is for example, or what a factor rate is. So traditionally bank lending is the most difficult to get, but it’s often excellent terms, micro loans or small loans are often made through community development financial institutions, and those may be more flexible on the credit space. And in addition, there are a variety of online lenders which can offer short term financing that may take out weekly or daily payments for that type of financing, they may offer invoice factoring, if you invoice customers and it takes them a while to pay you, etc. But when it comes to actually finding that lender, many business owners just take what they can get so whoever’s marketing to them at the moment, and whatever seems fastest and easiest, that’s what they go for. And unfortunately, that can lead you into some very expensive lending, when you may have qualified for something at a lower interest rate or with better terms.
The other thing you want to do if you are thinking about getting a business loan is to be prepared to provide the documentation lender needs. You need to be prepared for this. If you’re going to get the best types of financing available. Understand that this is typical and it’s what the bank or lender is going to use to make that decision and then give you the money that you need to grow your business so invest the time to provide what they need. The more organized you are with bank statements; tax returns all those things go a long way toward helping you be prepared for a business loan.
I hope you find this article useful to help you get a business loan, don’t forget to have time to prepare yourself well before going to see the lender and surely, I hope you will be able to secure a loan for your business.