A Guide to Loans for Business
- 20 Aug 2020
While business loans are a little less restrictive compared to other types of loans, it is still a loan, and no matter how much you borrow, you will need to pay it back eventually. Lenders are not there to freely give away their money, which is why you need to be very cautious when applying for a business loan. Your business could be taken away if you fail to pay back the loan.
This can sound a little scary, but it doesn’t have to. Below are four key rules that will help you ensure that the small business debt is going to subdue the potential of your company any time soon.
1. Borrowing only what you need
According to Credit21, the most important rule when it comes to borrowing for a business is understanding how much you actually need to borrow. You might be tempted to ask for more than what you need, but you need to borrow what your business requires.
If you plan on getting a loan to use in covering office furniture expenses, avoid going for the most expensive office chair and furniture you can find. You can save a lot of money by going for second-hand options. Look for ways of saving because it will mean having to borrow less, and you will have lower repayments. You will be able to pay back the loan faster.
2. Finding the right lender
There are different lenders you can borrow from, not just banks. There are many other lenders providing small business loans, and you can save yourself a lot of stress and hassle by going with an alternative lender.
When applying for a loan from traditional lenders such as banks, you can expect to deal with a lot of paperwork and the process takes a lot of time, even several months. This is not always the case, but before you are approved by a bank, your business needs to be at least two years with a stellar credit score.
The requirements when borrowing from an alternative lender are not like that, and you will be able to know whether you have been approved or not in a short time. Before you apply, make sure you look at their reputation and track record. You can talk to other businesses who had a similar goal and financial circumstances so they can tell you how a potential lender was of help to them.
3. Bank Your Money
When you apply for a business loan, lenders will look at your bank account. When you have money in your account, the lenders see you as less risky. The lenders are interested in knowing whether you can pay back the loan.
What lenders want to know is if you are able to pay back the loan while covering other expenses such as rent, payroll, inventory, etc. One way you can prove this is to show them that more money is coming in that going out. Pay close attention to bank statements so it doesn’t show that you are struggling with tight margins.
4. Getting your documents ready
There will be a lot of documents involved when applying or a small business loan. It is important to have the necessary documents ready because this is one of the most tiring aspects of the application. The banks ask for various documents alongside your application forms. Alternative lenders to require fewer documents.
The documents needed vary from one lender to another, but some of the most common ones include a profit and loss statement, cash flow statement, and a balance sheet. The lender may ask for credit card statements, personal tax returns, and personal financial statements – this can be any document proving that the business is gaining a steady stream of income. You can save yourself a lot of time by preparing the documents in advance.
The process of applying for a small business loan is a great business decision, but you have to do it right. If you don’t employ caution when doing it, you might end up in a lot of debts, which can result in you losing your business. The above four tips will go a long way in helping you.