How to Qualify for Small Business Loans
Small business loans are a great way of getting fast cash for a variety of business purposes, from paying wages to investing in an opportunity that’s too good to miss. While it is generally easy to qualify for such a loan, certain things can stall the process. On the bright side, if you use the tips we’re about to present to you, your business loan application will get the green light almost instantaneously (provided your credit score is great and you never defaulted or declared bankruptcy).
Tips to Implement
Have All the Paperwork Prepared
Applying for small business loans when your application file isn’t complete is counterproductive. If you have a financial advisor in your company, he’ll know what documents you’ll need to hand out to the potential lender. These include, but are not limited to: statements from your bank, income tax returns, docs that prove you’ve paid all your taxes and your credit file.
Create a Business Plan
Small business loans are seldom given to business owners that have no idea where their companies are going. The lack of a good business plan automatically decreases their credibility and subsequently, their chances of getting those loans. A business plan is the proof that you know what you’re doing and more importantly, that you’re experienced and prepared for whatever might come your way. Even though it sounds very complicated to put together an infallible business plan, it isn’t as long as you know exactly what your company is worth and the direction you want it to take in the future.
Don’t Ask for More Than You’re Worth
This is crucial – no lender will ever even consider giving you money if you’re not worth half the sum you’re asking for. He’ll take it as a sign that your management and money-handling skills leave a great deal to be desired. What you’re worth is the difference between your assets and your liabilities. It’s a simple calculus. If you can’t do it, one of your accountants can do it for you. Knowing what you’re worth will allow you to negotiate better interest rates, terms and to some extent, the final sum of the loan.
Check Your Credit Score
Many things can take their toll on your credit score/rating. You might not even be aware that it dropped, and this is why you need to check your file before applying, so as not to waste your time or the lender’s. Keep in mind that some lenders provide small business loans to businessmen and women with low credit score. In order for this to happen, though, they have to explain themselves, i.e. shed light on the reasons why their credit scores plummeted.
Consider Your Financing Options
Now that you went through all the four initial steps, it is time to research and select the loan typology that suits your business the best. These are the options you need to consider:
- Long-term small business loans: Lasting from one to twenty or more years, this type of loan is designed to accommodate businesses that have plenty of experience and proven financial history. This type of loan has a pre-set monthly payment and, of course, an interest rate. The interest is calculated in relation to the financial climate, the duration of the loan, and the company’s credit scores.
- Short-term business loans: Compared to the long-term credit, this loan can last up to one year. The interest rates are usually higher for shorter periods of repayment. This small business loan can be used to fulfil short-term needs and can be offered by both traditional financial institutions and online creditors.
- The business line of credit: The credit card of the business world, a business line of credit can be defined as a predetermined amount of money given by a bank. In this case, the business is able to pull out money when in need and repay the loan every month plus the interest rate.
- Working capital loans: Multiple companies access this type of funding especially during the seasons when the productivity and the profit are moving slower than usual. The working capital loans are short-term small business credits used for daily acquisitions and operations in a company. You could either upgrade the office equipment, find a new location for the business, bring new employees, organise training sessions, or simply use it to increase your credit score and build a good and steady financial portfolio. You could prove that your company is good at managing and reimbursing debts.
Small business loans are used left and right these days and pretty much anybody can get one. If you feel like you need more insight on how these loans work, we recommend you take a look at Business Loans.
This website is a great source of both pieces of advice about borrowing in general, and a variety of loans.