Small business loans are the lifeline for startups and new companies. They are used to fund initial expenses, help the business grow, push ahead with new research and development, and help hire new talent. A lot of different financial institutions offer loans and each one comes with their own set of demands and obligations that a business needs to meet in order to get the loan. A business owner should take this process seriously and go into borrowing money with substantial preparation.
Going through financial history
Having a problem with the credit rating can really damage your business. Credit ratings are used by banks to figure out if you will pay your bills on time and they do it by checking whether you’ve done it before. Before you apply for a loan, make sure you’ve paid all due bills (including smaller ones, like your phone and utility charges). If you know you’ve had problems paying on time before, go into it openly and honestly. Explain the reasons for the delay (and bring evidence for it) and focus on having a solid business plan.
Research the lenders
It’s an important and long-lasting decision ? it’s perfectly fine to shop around a little bit before deciding on a particular lender. Traditional banks are more rigorous when it comes to credit rate and making payments on time. Local banks often offer more favorable deals for businesses in the community. There are also peer-to-peer lending options where you get money from an individual directly – interest rates are larger on this one. In the end, consider online crowdfunding options if your products can attract large online communities.
There are multiple types of loans. You should choose the one that’s the best for the particular needs of your business. Lines of credit offer you funding when they are needed, with a cap on how much you can take at once and the important thing is that you don’t get charged until you actually use the money. Business loans like the ones offered by NSW Mortgage Corp are typically for a set dollar amount with a monthly interest rate. These loans sometimes need to be secured by a bond or a mortgage, but that depends on the amount.
Securities and guarantees
The lender is primarily concerned with your ability to pay back the loan. With this purpose in mind, collateral is being offered in case you’re unable to meet your obligation. For a business owner, there are other considerations as well –the needs of the employees and business partners and in the end, personal and family finances. Even if you are absolutely certain you will be able to repay the loan, be careful about what you’re putting down as collateral. Don’t jeopardize your personal finances in case the business fails. This is the decision to be made in consultation with the members of your family.
The lender will require detailed information about your business and finances, which in turn means dealing with a lot of paperwork. It can sometimes be so overwhelming that it might be a good idea to hire someone to do it for you, so you can actually run the business. Besides basic documents about the business and its executives, you’re going to need bank statements going back a few years, as well as the projected statements for the next couple of years. Tax information is also required together with the business plan.
Before taking a loan, you’re going to need to do your homework and follow the process financial institutions use in these cases. That’s the only way to prove your business can be trusted with the money.