Getting a business loan can be a difficult process, mainly due to the tight lending standard of banks and financial institutions. It is often necessary to approach outside financing options to help grow your business and cover day-to-day expenses. While getting approval for a small business can be difficult, you will always have better luck the more prepared you are. Here are questions to ask yourself before applying for a business loan
Why do you need the loan?
The reason for your loan will probably land in one of these four categories:
-to start a business
-to cover day-to-day costs
-to grow the business
-as a safety net
What type of loan is right for you?
Your reasons for needing the loan will dictate the type of loan you should get. It is worthwhile mentioning that it would be near impossible to get a small business loan within your company’s first year, as lenders require cash flow to support the repayment terms of your loan. This means that start-ups are automatically disqualified from loan financing. Instead, you will have to depend on business credit cards, borrowing money from friends and family, personal loans, crowd funding or a micro-loan to fund your business.
If you are running a business for more than a year, you have more financing options available to you, including business loans, a Merchant Money cash advance and more. You will need to sit down with an advisor and determine which type of loan will best suit your needs. You can apply for a business loan from several institutions, including banks, non-profit lenders and even online lenders. These lenders usually offer a variety of products, including long-term loans, short-term loans, credit cards and more. Once you have decided what financing options would best suit your needs, you can choose two or three and make comparisons. Of the loans you qualify for, you should choose the one with the lowest APR, as long as you can afford the monthly repayments.
What is your credit score?
Your credit score is one of the determining factors for not only whether you qualify, but your repayment amount and interest rate. Several credit card providers provide your credit score for free as well as some financial websites, so it will serve you well to do some research.
Can you afford the repayments?
Look carefully at your business financials, including revenue and expenses, and evaluate how much you can reasonably afford to pay back every month. Some lenders will require daily or weekly repayment depending on the loan type, so make sure you are able to meet your repayment requirements before signing on the dotted line.