Small business loans can be had from quite a few different alternative and traditional lenders. They can help you grow your business, fund research and development, assist you when it’s time to expand into different territories, enhance your marketing efforts and sales, and even more.
For that reason, here’s a quick look at some of the things you need to know about them.
When it comes to loans for small business purposes, there are a few different types. The options will vary depending on the needs of your business, the length of it, and what the specific terms are. Here are some of the choices:
- Line of Credit – Once you figure out what you need financially, you might come to find that what you actually need is a line of credit. This is sort of like a credit card – in that you can spend the funds as needed up to your credit limit. There’s generally a fee to get it started, but you won’t begin to accrue interest until you actually use it.
- Working Capital – This is a vehicle used by businesses to finance their daily operations. Some of these loans are unsecured, but companies that have little to no credit history might have to pledge collateral or provide a personal guarantee. This type of loan tends to last up to a year at the most.
- SBA – Some banks will offer small businesses low-interest loans that are backed by the Small Business Administration. The interest rates and repayment terms for this type of loan tend to be more favorable than other types of loans. That being said, there are strict requirements to qualify.
Now more lenders than ever are willing to lend money to small businesses. Many of them can be found with a simple Google search. However, you should always research any lender you’re thinking about going with to ensure that they’re able to meet your needs and trustworthy.
Anticipate Lender Perception
Lenders will ultimately make their decision based on the risk profile and credit history of the borrower. They’ll look at several factors that can include things like:
- Credit score
- Cash flow and outstanding loans
- Time in business
- Financial statements
It’s important to review these things carefully and take any action necessary to make these things look better to potential lenders.
Depending on what your loan size is, your accounting records and financial statements will be carefully reviewed by the lender. For that reason, it’s essential to ensure that they’re thorough, correct, and complete. They should include the balance sheet, cash flow statements, and income and loss statements. The lender might ask questions regarding accounts receivable, accounts payable, debt to equity ratio, gross margin, and more. It’s critical to have your accountant go over the financial statements to locate any issues that might be raised by the lender.
Those are some of the things you need to know when it comes to getting a small business loan. If you need one, do your due diligence to make sure you find the best option and lender and to ensure that all of your paperwork is in order before you apply.