When starting a business one of the most important things to consider is how to acquire the capital you need to start. A common way of doing this is through obtaining a business loan. This can also help to fund the expansion and maintenance of an existing business as well.
The process for getting a business loan may seem daunting for many people but it really does not have to be. The following is a breakdown of what you need to do to apply for a business loan.
Decide what type of loan is best for your business
There are a variety of business loans available. Traditional term loans will provide you with a lump sum of cash you will be required to pay back along with interest charges over a specified period of time.
On the other hand, a business line of credit allows you to use financing available to you as you need it, giving you more flexibility. With this type of loan, you are not required to tap into the line of credit if you do not need to.
If your business is a startup or has not been in operation for long, it may be difficult to acquire a traditional loan. In this case you may want to consider applying for a business credit card or a personal business loan.
Determine your chances of qualifying for a loan
Whether or not you qualify for a business loan will depend on what type of loan you are applying for and from which financial institution. Some of the factors that will determine if you qualify will be your credit score, how long you have been in business and annual revenue.
Calculate what payments are affordable
Look at your financial situation, particularly the cash flow your business generates on a regular basis. Take into consideration your expenses. This will help you determine how much you can comfortably afford to pay each month for a business loan.
Collateralizing your loan
You can have a secured or unsecured business loan. Having a secured business loan means you will need to offer some type of asset as collateral, such as real estate or equipment. The lender would be able to seize the collateral if you fail to pay back the loan.
Some lenders will require a personal guarantee on a business loan even if it is unsecured. This means the lender will be able to sue you for your personal assets, not just business assets, in the case of you failing to repay the debt.
Applying for a business loan
After comparing the various small business lenders available to you, it will be time to choose with which lender you will want to put in an application for a loan. Once you have completed the application process and have received your loan you will need to make sure you responsibly manage your finances to ensure you are indeed able to repay the debt. Our team at Independent Financial Services is professionally qualified to assist in the development of a comprehensive financial roadmap and help setup an appropriate payment plan for the loan.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.