A Business Loan Can Help Your Business Grow
You’ve got the plan; you’ve got the drive, but unless you have the money, the dream simply won’t become a reality. If your account is saying one thing, but your vision is saying another, then it may be time to apply for a business loan.
How Do Business Loans Work?
A business loan is similar to a personal loan but explicitly tuned for business use. Lenders will offer different business options from start-up funds, to expansion, to buying property.
The main types of business loans are from financial institutes, such as:
- SBA (Small Business Administration)
- Credit Unions
- Online Lenders
Business loans often come in installment loans, which are the same as personal loans. You borrow an agreed amount with a specific paid term and a set interest rate.
The other alternative business loans are revolving credit. They are similar to a home equity line of credit (HELOC) but for businesses. With revolving credit, you borrow a set amount but do not have to use it all. You are generally charged interest on the amount that you have used rather than the amount you have borrowed.
A business loan’s monthly payment and interest rate are fixed for a certain period, making them ideal for small businesses and startups.
Some loans will have a floating interest rate, but most small business startups tend to fix a rate so there are no nasty surprises in the initial years of the business.
Starting and running a business can be a difficult process, emotionally and financially. For the latter, an online business loan may help relieve that pressure. Using this new capital wisely can be critical to a business’s success.
Why Would I Need A Business Loan?
|How To Get a Business Loan|
|Have a Business Plan||Know how much you need and what you need it for.|
|Shop Around||Once you know what you need to money for you can shop around to get a clear idea of what the loan will cost you in interest and fees.|
|Check Your Credit Score||You can check your credit score for free. If you are a startup, lenders will often be interested in your personal credit history as your business will not have any. You will usually have to personally guarantee business loans when you are getting started.|
|Gather Your Documents||Now that you have shopped around and know where you would like to apply for a loan, have all your personal and business information ready to go. Traditional lenders, such as banks and credit unions, will have the most rigorous application policies.|
|Apply For A Loan||Depending on the lender and the amount you require, the application process can take a while. Sometimes it can take anywhere up to a month to be approved. It’s important to apply as soon as you are ready with your documentation just in case they require more information or get rejected by your first lender.|
Are You Eligible for a Business Loan?
Different lenders have varying rules on how to apply for a loan, but there are a few basic rules:
- The business is registered and has a tax ID number
- In most cases a credit score of between 600 and 800
- Ability to offer collateral
- Steady cash flow
- Must show a profit or a 3 – 5 year cash projection
- A plan laying out the money’s intended use
An online business loan can help you increase your working capital. This is especially helpful when you find it challenging to make ends meet. There are various online lenders with less stringent application rules who are willing to partner with business owners.
Make a Smart Decision
It is all too easy to get excited at the thought of additional capital injected into your business, but use caution. Make sure you understand the terms. Don’t enter into any agreement without the following information:
- The frequency and flexibility of payments
- Interest-calculation methods
- Any penalties associated with defaulting
- The business loan rates and terms
- How to reach customer service
Talk to various lenders when shopping for a business loan. With caution and patience, you can make wise decisions. It’s also important to be confident that you can pay that loan back. Always borrow the lowest amount that you need unless you can be approved for revolving credit. Startup business loans can be risky to lenders as many fail in their first few years.
Do You Really Need a Business Loan?
Every business’ needs are unique. If you want to expand your business, a loan may be beneficial, but are there other avenues you can take to raise funds for this expansion? If there are no other avenues, then a loan may be the best route to take, but remember to search for the best business loan rates.
It’s also good to evaluate your business’s past performance. You don’t want to take a loan when your business is on shaky ground. Besides, a lack of cash flow may result in your loan application getting rejected.
Once you find a business loan with rates and payment terms you’re comfortable, you can proceed and help take your business to the next level.
What Really Affects Business Loan Rates?
When looking at getting a business loan, most owners are concerned about the interest rate. The interest rate, which is calculated as a percent of the principal, is what you pay the lender for issuing your company the loan. These rates can vary for many reasons, but they all point back to the risk the lender takes by issuing the business loan.
You can use our online business loan calculator to check your rates.
Some factors that can affect business loans rates are:
- Your business credit history
- Your credit history
- The type of business
- The length of time in business
- Business plan
- Business capital and cash flow
The Types of Interest Rates
- Simple interest: Calculated monthly based on the unpaid principal
- Precalculated interest: Calculated at funding based on the amount borrowed
It’s in a lender’s best interest to connect you with a business loan that fits your needs, so consult with several lenders before agreeing to any terms.