Is your business short on cash flow? Think you need a business loan to bring your business to the next level?
Well, before taking out a business loan, you need to learn the ins-and-outs of loan applications and requirements. If you don’t, you run the risk of not getting your application approved and losing out on funding you need to grow your business.
5 Things You Need to Know Before Taking Out a Business Loan
Don’t know the first things about business loans? Here are 5 essential things you need to know about business loans before you take one out.
There are Many Types of Business Loans
Did you know there are about 17 business loans available to entrepreneurs? Each one has different rates, terms, and qualifications. Here are just a few of the available options:
- Bank lines of credit
- Short-term loans
- Equipment loans
- Construction bridge loan
- SBA microloans
- Merchant cash advances
Each of these loans is designed to meet a certain kind of business need. So study up on them to determine which one is right for you and your business.
You Need to Be Prepared to Sell your Business
Lenders won’t want to lend you money if they don’t believe in you or your business. You have to prove you have a viable business and that you’ll make the profits necessary for paying your loan back.
Here are some questions you should be ready to answer:
- What does your business do?
- Who are your clients?
- How have you previously managed credit?
- What are your profit margins?
- What do you plan on using this loan for?
If you prep this information in advance, you’ll have a better chance of getting the finances you need.
Your Accountant Can Help You Through the Process
Applying for a first-time business loan isn’t easy. It’s hard to know how much you should actually be asking for. Your accountant can really help you through this process.
Your accountant can tell you which kinds of business loans are best for your business, and which ones aren’t feasible. They can also help you develop your financial statements.
You Need to Know Your Credit Score
Your credit score plays a big role in whether or not you get a loan. That’s why you need to know what it is, so you can determine how big of a loan you can get.
Before you apply for a loan, ask for a copy of your credit report. If you have a high credit score, above 700, you’ll have good chances of securing a low-interest loan. If you have a mid-level or sub-level score, you’ll probably get a loan with high interest rates if you’re approved.
Fine Print is Important
Before you sign a loan agreement, you should absolutely review it so you know what you’re signing up for. Not all loan agreements are the same, and there are many factors that you should know ahead of time.
Pay special to the outlined payment structure. Is there a balloon payment you may be unable to meet? Are there early payment penalties, and how much will the interest grow over the life of the loan? You should consider all of these things before taking on any loan.
Final Thoughts on Business Loans
Whether you’re looking to grow your company or simply keep it afloat, taking out a business loan can greatly impact your business opportunities. By educating yourself on the 5 things outlined in this article, you can make the best loan decision for your business.
Did you find the tips outlined in this article helpful? Need more inspiration and advice? Check out our business blog for more insights!