Things to Know When Applying Business Loan
When you are starting out with a venture or already operating a business, there can be many occasions where you need financial help. For the survival of your business in such a situation, a business loan may help you. So, it is advisable to not cross out the option of opting for a loan.
Businesses take loans for a number of different reasons. For example, a company may be looking to hire experts using the best employee monitoring software at higher salaries. Loans can help you finance the expansion of your team. Similarly, buying equipment can be another good reason to opt for a loan.
Here are some things you should know before taking a loan:
When to Consider a Loan?
Before you take a loan, do know that you have to return it eventually. So, it is best to not take loans casually. There should be solid reasons for you to consider the option. With that said, getting a helping hand for legit reasons is completely fine and something worth considering. One of the signs that you need a loan is when your business has poor cash flow. You may need an external helping hand to temporarily help you with these problems.
Other than covering utilities, a business may need to buy expensive equipment necessary for operations. That equipment can be anything from buying working stations for an IT business, kitchen equipment for a catering company, and relevant inventory for other businesses. Similarly, expanding your team and advertising your business can be other reasons for you to consider a business loan.
Businesses often take loans to expand. For example, someone operating their business from home may want to open a brick-and-mortar store. A loan can finance the real estate rent and other expenses for acquisition. Lastly, a company can take a loan to survive on rainy days. For example, a business with a disrupted supply chain may get back into the game with a loan.
Calculate How Much You Need
Once you decide that you are going for a loan, the next thing to do is to calculate how much you need. It is best to give the calculation some time. If you have a business partner or you are hiring the services of a business consultant, get their input too.
The calculation of how much loan you need is not as straightforward as it may appear. For example, if your needed equipment adds up to 80K, you should consider other costs like shipping, installation, and other expenses too. It is best to loan an amount slightly higher than your calculated sum. However, don’t go overboard in seeking a much higher sum than required because you have to pay it back. Not to mention it would mean paying higher interest on the payment.
Create A Business Plan
Most banks and lenders require you to submit your business plan to proceed with your loan application. Consider it a requisite and take your time in creating a business plan to present to your lenders. Add details about your company, core business, financials, team, industry, and other important things. You can create one on your own or hire someone else to do it for you.
Have a Good Credit History
When applying for a business loan, your past credit history is among the major factors considered by lenders before approving your loan application. A decent credit history opens you to more types of loan options with a lower interest rate. Whereas a bad credit history leads to the opposite. So, it is best to settle your previous credit history to avoid future trouble with loans.
Select the Type of Loan
There are different types of business loans you can opt for based on the need and flexibility in payments. A few popular types of loans are term loans, SBA, and online loans. Term loans are generally more suited for established businesses and often lend significantly higher sums. Businesses have to settle these loans between a term of 2 to 10 years. The process and requisites against such loans are quite strict.
SBA loans are aimed to help small businesses. Therefore, the T&Cs for such loans are relatively easier to satisfy in terms of documentation and credit score. But the receivables are not as generous as term loans.
Online loans are different from traditional loans with separate eligibility criteria. The terms and receivables in this case depend on the lenders.
Choose a Lender
The lenders for loans are generally small banks, big banks, credit unions, and other lenders. Every lender has its own set of requisites against the type of loan. For some, the terms can be quite stringent, whereas for others the credit may be high. Also, the range can differ too. Take your time to pick the best option for you. Do the required documentation and wait for them to process your application.
Even if you don’t need a loan, it is worth it to know the process. Understanding how loans work is important like learning about staffing your business with Centralized and Decentralized Recruitment. So, it is best to check out some lenders and understand the process and requisites of taking a business loan.
