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Businesses need financial help from time to time. If they are not willing to sell off their assets, the next best thing is to get a business loan. These loans can be used to cover expenses such as payroll, finance growth and expansion, or even other day-to-day expenses. Even if it can be hard to get a loan, if you are well prepared, it should be easy for you.
Why do you need a loan?
Taking a loan can put some financial pressure on your business so you should think carefully and critically why you need a loan if you need it. Banks and other lenders will expect an answer to this question and the answer will probably fall in one or more of four categories – to start the business, to pay for expenses, to grow and expand the business or have a safety cushion during times of financial turmoil.
Types of loans – which one is best for you?
Once you know why you need the loan, you then have to decide the type of loan you will take. If you are a new business, you might not find any lenders willing to lend you money because loan repayments are supported by continuous cash flow. If you are just starting out friends and family, business cards, personal loans, or loans from a credit union are your best bet.
If you have proof of continuous cash flow, you have a lot more options. These include term loans, invoice factoring, SBA loans and business lines of credit. All these are available to you from financial institutions, private lenders and credit unions.
Choose the best lender
When choosing your lender, you will often have to choose between banks, non-profit lenders, and online lenders. Shopping for a lender should be done carefully. Know what terms they offer and if you are qualified. Banks will usually need you to provide collateral, have good credit, and be patient. If you cannot wait for banks to approve your loans, micro-lenders are your next option. They offer loans fast and they rarely mind if you have a small business, all they need is proof that you can repay the loan.
Online lenders are another option. They are a good option if you do not have collateral and need cash fast. Online lenders lend small amounts – $500 to $5000 – with interest rates of between 7 and, sometimes, over 100% if you are really desperate.
Know if you qualify
There are several factors that could determine if you qualify for a loan. These include your credit score, how long you have been in business, how much your business makes and if you can make the payments. That last point is more about you and your business than it is about the lenders. Knowing whether you can make the necessary payments will let you know if you need the loan, have to choose another lender or have to think of an alternative cash source.