There are various financing options available for small businesses as both traditional lenders and alternative ones offer small business loans at reasonable interest rates. However, you will need some preparation so that you can obtain a small business loan at a reasonable interest rate. Here are eight tips for getting such a loan.
Understand the Different Kinds of Small Business Loans Available
The financing options available to you will vary depending on your business needs, the loan’s specific terms, and the duration of the loan. The different types of loans available for small businesses include:
- SBA Disaster Loans – Available to businesses that have been impacted by a declared disaster.
- Small Business Line of Credit – Gives businesses access to funds as needed.
- Accounts Receivable Financing – This Type Of Financing Is Secured By Your Business’s Accounts Receivable.
- Working Capital Loans – Loans used to cover a business’s daily operations.
- Small Business Term Loans – These loans are usually a specified dollar amount and are used to finance expansion, capital expenditures, and business operations.
- SBA Small Business Term Loans – These loans attract low-interest rates and favorable repayment terms because they are guaranteed and backed by the SBA.
- Equipment Loans – These loans are used to finance vehicles, equipment, and software and are secured by the purchased equipment.
- Small Business Credit Card – Credit cards can be used for short-term financing.
Research Available Lenders
Many lenders offer small business loans. You can find lenders through a simple online search. These lenders include:
- Direct online lenders
- Large commercial banks
- Local community banks
- Peer-to-peer lending sites
- SBA-backed bank lenders
Anticipate How Different Lenders Will View Your Credit and Risk Profile
Lenders base the decision on whether they should give you a loan on your risk profile and credit report, so take the necessary corrective action before applying for a loan. Your lender will consider the following:
- Credit score
- Cash flow and outstanding loans
- Business assets
- Time in business
- Investors in the business
- Financial statements
Ensure All Your Financial Statements Are in Proper Order
Before a lender gives you a loan, they evaluate your accounting record and financial statements. So ensure they are thorough, correct, and complete. Additionally, prepare to respond to questions on your finances.
Gather Detailed Information Needed for Your Small Business Loan Application
The type of information required includes:
- Business Name
- Federal Tax ID
- Legal structure
- Financial statements
- Projected financial statements
- State filings, like the certificate of incorporation
- Copies of general liability and key man insurance policies
- The amount of loan needed
- Business credit report
- Business plan
- Business bank statements
Determine What Security or Guarantee Can Be Provided for the Loan
Lenders are primarily concerned with your ability to repay the loan. So you’ll likely qualify for favorable lending terms if you provide a security interest.
Carefully Review Your Online Profile and Postings
Lenders will review online information about you and your business as part of their due diligence. So you should ensure your website is up-to-date as well as review your and your business’s social media profiles.
Analyze the Key Term of the Proposed Business Loan
Consider whether the proposed loan suits your business needs. You can do this by analyzing the terms of the loans and comparing them with those offered by alternative lenders.
Be Ready to Specify the Amount You’ll Borrow and How You’ll Use the Money
Lenders need to know how much you want to borrow and how you will use the loan.