Everything You Need to Know Before Applying for a Business Loan
Running a business without capital can be compared to riding your favorite electric scooter without power. Your business can hit rock bottom, especially in circumstances when you need financing, such as having an anticipated business opportunity at a time when going through a financial crisis. Frustrating right? It’s even more challenging to run or start your dream business without any funds leaving you with an impossible choice; a business loan. However, before you apply for the loan, it’s important that you weigh your options to know what works for your business and what doesn’t.
Here’s everything you need to know before applying for a business loan.
Before you consider taking up a business loan, whether you are running a small or large enterprise, you’ll first and foremost want to check what the financial institution in question requires from you. One thing to note is that loan requirements will vary from one lending institution to the other. Thanks to advancements in technology, getting a business loan is as easy as tapping the click of a button and voila! Your loan request is processed in no time. While it might require a lot of brainstorming and reading online reviews on the best loan options out there, it might eventually work in your favor. You’ll, however, want to ensure that your business loan is from certified financial institutions. By conducting extensive research, you’ll find that such business loans are:
- Easy and convenient to apply
- Have low-interest rates attached and with flexible repayment terms
- Are approved at lightning speeds
- As icing on the cake, you receive some expert financial advice from top financial counselors
Nevertheless, you have to meet certain requirements to be considered for the loan. Among these requirements include:
- Attractive credit scores – Your credit history plays a huge, if not an important, role in your borrowing, and this is not only a financial borrowing requirement that applies to businesses but also in private borrowing.
- Provision of legal documents – This may include tax assessments, financial or bank statements, as well as background checks on your incomes.
- List and details of directors or owners of the business – The financial institution may want to ascertain whether you have business partners who are jointly involved in the running of the business or whether its a business run solely by one person.
- Proof of business premises such as tenancy agreements – This will play a role to prove to the lender that you have a physical location where they can find you.
- Consider the age of your venture – Additionally, you’ll also have to prove to the lender how long your business has been in operation. Some lenders have a limit to the loans they provide to young businesses.
The Pros and Cons of a Business Loan
A business loan comes in handy when you feel it’s the right time to upgrade, have business opportunities but don’t have enough to capitalize, or when it comes to enhancing the interior décor of your business premises. Be that as it may, you should be aware of the pros and cons. Here they are:
- Affordable repayment terms all depending on the interests charged
- Loans will help to give a boost of life to a growing business
- Helps you and your business to build positive credit scores – But only when you repay your loans in time
- Even after taking up a business loan, you’ll still maintain full control of your business
- Say goodbye to those cash flow setbacks
- Qualifying can be tough, especially if your business is fairly young or is a start-up
- Repayments can hurt the cash flow – Loan repayments can curtail growth since you have to redirect most of the income repaying the loan
- A low or negative credit score may mean higher interest rates, especially when dealing with private lenders
Consider Alternative Sources of Capital
Understandably, you need to pay your very important creditors. While a loan can be your only option, it could also mean the difference between a lucrative deal gone good and a long repayment term that will eat into your finances. Alternatively, you might as well consider other sources of capital. These include:
- Friends and family – You have friends and family who’d be willing to support your business growth ideas.
- Peer – to – peer lending networks – Peer-to-peer lending has, over the past few years, grown to be a great source of capital for startups. However, you must find a trustworthy network and one that will charge you low-interest rates.
- Owner financing – You can get a loan from a seller from whom you want to purchase a deliverable. In return, you’ll have to make a repayment agreement, such as through a promissory note agreeing to repay the said amount over a certain period.
- Government stimulus packages – Various government programs help to support startups and small businesses through government grants.
- Venture capitalists and angel investors – You also have the option of exchanging a certain percentage of your business in exchange for capital
As you can see, you don’t have to let that business growth opportunity pass you by on account of a lack of funds. There are so many financial institutions that would be willing to support your business growth. There are a lot of options at your fingertips to ensure your business grows and expands as per your dreams. It’s time you make your business dreams come true and start making those profits.