Additional funds are always necessary for business that are planning to expand. For instance, you need to open a new store, buy new equipment, add manpower, or increase the inventory, you need money to pay for these. If you are a business startup, money issues that come with expansions are seemingly greater. But of course, without expansion, your business will not gain the increase in revenue. Funds for these expenses are usually limited and may not be enough to cover all the expenses. This is when small business loans can help you.
Types of Small Business Loans
Business loans vary and the type of loan you should get depends on many different factors. First is the amount you need to borrow. Other factors to consider is the length of loan, payment terms, and the type of your business. The different types of small business loans include:
- Accounts receivable financing
- Small business line of credit
- Working capital loans
- Small business administration loans or SBA loans
- Term loans
- Credit card loans
- Equipment loans
How to Choose a Lender
These kinds of loans can be secured from various lenders. For example, a small business loan can be obtained directly from an online lender that gives quick and easy loans with simple processing requirements. Nonetheless, you should be careful when dealing with lending companies like this. But you can find reputable lenders online so you don’t have to be cautious about all.
Not comfortable transacting with lenders you find online? Then you can visit your neighborhood commercial banks and apply for a loan. While the process is comparably slower and more tedious, banks are a safer alternative. If a commercial bank is out of the question, try securing a loan from a local community bank. In addition, peer-to-peer sites and bank lenders with SBA guarantees can also offer you with great loan terms that you may find appealing.
How To Get A Business Loan
Most lenders base your application approval on certain criteria for eligibility. The lenders are likely to check your credit score and personal information. They will check out any of your outstanding loans and see if your credit card payments are updated. Most of the time, your cash flow and vendor contracts will be investigated, as well. These will help them see if you are eligible for a loan and capable of paying them back.
Moreover, they will also review cash on hand, accounts receivables, and other data involving your business. You will have higher loan approval probability if your asset base is excellent. Moreover, the lender will also consider how long have you been in the industry. Lenders usually favor businesses with long experience in the field or have been in the business for years. In addition, you will also have higher chance of getting approval if you have existing investors or professional ventures.
Lenders will always have to review your financial statements regardless of the loan size or type. These include your cash flow statements, business accounting records, income and loss statements, as well as balance sheets. Hence, making sure that these financial statements are correct and complete before the actual loan application can help. Loan officers prefer that the financial statements are prepared and audited by a certified public accountant. However, this can add to the costs. If you want another alternative, try doing your financial statement and have a certified public accountant to review them for you. This is a much cheaper option.
In addition to your financial statement, you may also need to produce copies of your projected financial statement, federal Tax ID, the business’ legal structure, business plan, credit report, tax returns, and formal letter of intent for a loan. Also expect the need to explain to the lender your plans and how can you possibly pay them back.
Getting a small business loan is not that difficult. The important thing is to make sure you meet the requirements asked by lender. Keep in mind that you need that loan to help boost your business, hence, doing your best you can to be able to get the loan is necessary. Nonetheless, before applying for small business loans, have a direct plan on what you need to do for your business and plan the expansion carefully.