Whether you’re joining forces with a partner and starting a small business based on a joint vision, you’re itching to get a self-made startup off the ground, or you’ve got an established small business that needs a rebrand, an upgrade or just a little bit of help: you may be considering applying for a small business loan.
There are many different reasons that small businesses and individuals consider getting small business loans. They can be a great boon to any business; allowing you to take care of initial startup costs, branding, inventory, and more. Many financial institutions offer great loans with decent interest rates and payback plans. Taking the time to compare these different loans is always a good idea. Don’t just take the first one you’re offered – if you’re offered one. Not every small business loan application is approved and there are mistakes that many small business owners make when applying for loans.
So should you apply for a small business loan? There are many factors to consider before you sign that application form.
The first things you need to sit down and ask yourself are a few basic questions: What do you need the money for/how will you use it? How much do you need to ask for and how fast do you need it? If you’re approved for less, would you still take the funds/would it still help? What can you offer as collateral? Do you have a business plan to give the lender? What is your credit score like?
These are all questions you’ll be asked by the lender, so you might as well sit down and write down your answers before you apply. Once you’ve got that information in hand in a clear, concise document, look it over and decide: is applying for a loan a smart business choice for me? Am I likely to be approved? If the answer is yes, perhaps applying for a small business loan is a good idea!
Once you’ve applied, you’ll meet with a lender who may or may not offer you a loan. If they do, you need to ask more questions before accepting the loan. Things you need to ask about: interest rates, payment schedules and fees for things like late payments, are there payment arrangements, refinancing options, payment history and credit score reporting; and these are just the financial based questions relevant to your specific loan. You’ll also want to talk to the lender about themselves. For example: do they offer loans to many businesses like yours? Businesses in your area/demographic? Do they have good reviews and ratings from clients and customers? What is their BBB rating? Do they work with customers who fall on hard times? These are all questions you should have the answers to (and feel good about) before accepting a large loan.
Once you’ve decided to take out a small business loan, you’ll need to choose what type of business loan is right for your company. There are many different types of small business loans to choose from. Your lender or money manager can go over these types with you to help you make a sound financial business decision.
These loan options include line-of-credit loans, which function as a credit card or open line of credit; basic installment loans, which are paid with a regular monthly payment (this is your basic type of loan that you’re likely already familiar with); balloon loans, where you pay mainly interest each month with a large “end” payment at the close of the loan; interim loans that are paid in part as construction on a project is in process and then paid off via a mortgage at the end; both secured (involving collateral) and unsecured (no collateral) loans; loans that are built into a mortgage, letter of credit loans, and several other, lesser-used types. Each financial institution or bank is different, and offer different loan products based on these models. You’ll need to speak to the loan officer or lender to know which ones you qualify for.
Applying for a business loan is a pretty easy process, one you’ve decided to apply. If you already have an established business, or even just a good business plan, with just some good collateral and a timely payment history, you can get approved for the business loans you need. Taking advantage of a small business loan can give you the cash flow you need to get off the ground and start seeing some real growth and success. Best of luck!