Applying For A Loan: Advice For Small Businesses

by Sachin

As a small business owner growing one’s operation is particularly difficult if no capital is available. As businesses grow, the ability to acquire loans for capital becomes increasingly important for all sorts of reasons. They may need to purchase equipment, hire employees, invest in inventory, or require funds for any number of purposes.

Fortunately, there are many options available for financing your projects. But you need to do your research in order to find the loan source most appropriate for your particular needs.

Determining the Terms of the Loan You Require

It’s important to focus in on your efforts to acquire financing. You need to clearly lay out your goals and the specific expenses you want to spend the loan money on. First off, you need an idea of exactly how much money you require. Crunch the numbers and figure out your budget. You want to make sure you’ll be able to maintain your loan repayments to avoid damaging your company’s credit rating.

Another thing you’ll want to put thought into is how easy it’s going to be for you and your company to get a loan. Important factors will be your personal and business’s credit score. You’ll also need to work out how much debt you already have and are still paying off.

Think about how long you’ll be wanting to make payments. Loans are typically available for varying terms. You could get a short-term loan of only six months or a loan with a term of several years.

Different Options Available to You

These days, there are numerous types of loan products out there. You don’t want to take one type of loan before you’ve become familiar with all the other options.

The following are the three main types of loans you’ll want to consider in order to find the perfect financial product for your company:

Traditional Loans from Banks

The first type of loan to consider is a traditional bank loan. If your company is fairly well established, you may be approved for a loan from a bank. Banks typically offer businesses lines of credit, franchise startup loans, equipment loans, and professional practice loans. 

However, of the three loan types mentioned here, traditional bank loans tend to be the hardest to get. If your company is small and hasn’t been in existence very long, you might have to look elsewhere for a loan.

Loans from the Small Business Administration

The Small Business Administration is typically more willing to work with newer and smaller companies than traditional banks. The Small Business Administration offers numerous loan programs, including the 7(a) loan program, the microloan program, disaster loans, and real estate/equipment loans. For less established companies microloans are perhaps one of the best options from the Small Business Administration because they tend to be smaller in amount. The average microloan amount is $13,000.

Alternative Loan Products

Various alternative business loan products are also available, including working capital loans and merchant cash advances. Working capital loans are typically short-term. This is simply a loan used to finance everyday operations rather than make big purchases on equipment or items a company wants to purchase as an investment.

Merchant cash advances are loans based on how much money a company generates through credit card transactions. An advance on these transactions is provided to the business as a loan. As sales come in payments on the advance are automatically taken out of the company’s merchant account on a daily or monthly basis.

Important Information to Know When Applying for a Business Loan

Regardless of which type of loan you apply for, you’ll need to supply similar pieces of information to the lender.

Documentation to be submitted in pursuit of a loan typically include financial projections and your company’s profit and loss statements. Lenders might also want to see the company’s tax returns. With business loans, it’s fairly typical for lenders to evaluate the reasons why a company wants to borrow money. This means you will need to provide them with a detailed business plan describing the envisioned project and all the expenses it will involve.

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