Building a business can be difficult, especially if you are struggling to build capital or pay for the goods that you need to operate successfully. However, there are options for aspiring business who would like a quick and effective cash flow increase. While services like business credit cards are effective if used correctly, one of the easier options for small businesses is to take out a business loan. Also known as commercial loans, these are loans that come from banks or other money lenders with the sole intent and purpose of building up a business.
By learning the constituent parts of these loans and the proper ways to go about getting them, you can be confident in growing your business quickly and responsibly.
What is a business loan?
Compared to the many other types of loans that exist, business loans are quite versatile in that they can either be a short term influx of cash for a small business to use on a temporary or one-time purchase, or recurring loans that renew whenever they are needed, such as for seasonal orders. You can get these loans only if your business is accredited and approved, and the amount that you may be able to receive will vary based on the lender, your business’ credit score and other factors. These loans are even sometimes listed as unsecured, meaning that you will not have to provide any collateral to the lender in the event that your business fails. But if a business term loan is secured, you may be at risk of losing your home, car or other property if you do not pay off your loan on time.
When you take out a business loan, you will be given a time frame for repaying it, as well as an annual percentage rate (APR) that dictates how much interest will be added to your total loan debt every month. Money lenders are often tricky when it comes to giving good deals on these interest rates. While not all lenders will offer hidden fees and predatory interest rates, it is crucial as a small business owner to be aware of how much you will be asked to pay each month, compared to how much you are willing to pay.
Why You Might Consider Getting a Business Loan
Generally, small businesses will need to consider business loans if they are running low on usable business capital, and need a boost of supply in order to meet their growing demand. You can use a business loan on many different goods and services, such as:
- Materials to manufacture or equipment to help you to make your product.
- Advertising or other forms of marketing for your brand.
- Real estate to help form a temporary or permanent home for your business.
- Refinancing as-of-yet unpaid customer invoices for immediate use.
- Forming a safety cushion for your business in case of unforeseen circumstances.
Of course, there are also other uses for business loans, but whatever your ideas are for this financial aid, you should always have an idea in mind regarding what you need the loan for. Many lenders will not give out loans to those who do not have a good reason for getting them, so having a game plan in mind is highly recommended.
Finding the Right Business Loan for You
If you have established that a business loan would be helpful for your growing business, the next step is to find the loan and loan provider that will work best for you. It is crucial to remember that these are not gifts of money, but loans that incur interest rates each month and require consistent payments to continue utilizing them. Therefore, getting a good deal on your APR should be one of your top priorities when it comes to finding a business loan.
However, it is not always easy to get business loans exactly when you want them. For example, it can be very difficult to get any kind of business loan during your first year of business, simply because you have not had the chance to build up very much revenue or business credit. This is why prioritizing business credit early on is a smart idea – this can be done by getting business credit cards, crowd funding or even getting personal loans and later refinancing them with your future business loan. Once you have built up enough credit, you can look at the wide variety of business loan types that are available.
Different kinds of business loans have different uses, different levels of coverage and even different interest rates. For example, while term loans can give you high amounts of cash that you can repay at moderate APRs over a long period of time, merchant cash advances provide the fastest access to loaned cash, at the price of extremely high APRs. To truly understand which kind of business loan is right for you (and how much you are willing to pay in interest each month), it is sometimes best to talk with your preferred bank or lending institution. Your situation may be different than someone else’s – so, you should be aware of what you are willing to commit to in order to fund your business.
Business Loan Preparation & Application
After picking the right loan, you can finally begin to prepare your business loan application. To be entirely ready for this application, you will need to compile the following pieces of information and bring them to your preferred lender when you submit your application form:
- Identification documents, such as a driver’s license or ID card
- Your business license, commercial leases, financial projections and balance sheets
- Personal and business bank statements and tax returns
- W-2 employment information, along with your resume
- A detailed plan that outlines how the loan will be used productively for your company
Of course, some lenders do not require all of this information. Certain online lenders, for example, may not ask for quite so many documents regarding tax and income. However, having this information prepared can save you a lot of time upon applying, especially if you are in a hurry to get your loan as quickly as possible.
Once you have compiled your completed application and all of the necessary information, you can send it to your preferred lending institution. For some types of loans, you may be asked to perform a presentation about your plans for the loan in order to further persuade the lenders. If you loan plan is detailed and succinct enough, your loan application will be accepted and you may be able to receive your loan in short time. And once you have begun receiving your loan, you will be informed as to how to begin paying it off each month.
By Alfred Wickham –