How to Prepare and Get a Higher Business Loan Amount
Are you thinking of taking on a business loan to revive or boost your business? It is imperative that you prepare well to access the maximum amount you need. Many small business owners fail in their loan application or get substantially less than they wanted for failing to prepare. You are also at risk getting the wrong product with higher interest rates than your business can support. It is important to prepare well when approaching financial institutions to get the best deal and amount.
Work Out the Purpose and Amount Needed
Taking a loan without a proper plan can lead to disaster when funds don’t go to purposes that offer value for money. It is important to work out your business’ needs and the financing amount that is appropriate to solve that problem. It would be recommendable to consult a financial adviser to analyze your situation.
Understand Different Loan Types
There are different financing products open to small businesses depending on the purpose of the loan. The most commonly offered by a majority of financial institutions are:
Small Business loans
Many financial institutions have loans targeted to small businesses. They range from $5,000 to $250,000 and come with friendly repayment terms. These loans are usually accessible via endorsement from government agencies that support small businesses.
Small Business Term Loans
These loans are appropriate for large expenditures including capital expenditures, and business expansion. Term loans range from $250,000 to $5 million. They can be secured, partially secured or unsecured depending on a business’ balance sheet. They are repayable in six months to three years. You can compare term loans using loan comparison platforms like Sambla.
This loan is for equipment leasing or purchasing. You will be required to lay down a percentage of deposit for the equipment. This loan ranges from $5,000 to $500,000 and is payable in two to five years.
Working Capital Loans
These loans secure the business against the ups and downs of revenues and expenditures in the business cycle. It acts as a cash reserve to back up day-to-day business operations. Working capital loans are often unsecured and range from $5,000 to $100,000 depending on creditworthiness. They are payable in 6-12 months.
Research Friendly Financiers
There are different sources of funds with different terms and conditions, and processes of loan applications:
Community Banks/Credit Unions
These financial institutions are the friendliest to small businesses, especially brick and mortar businesses that are familiar. The loan approval is faster, but loan amounts are low.
Global or national banks are also open to small businesses, but have stricter loan approval processes. They are suitable for larger term loans and equipment loans.
Peer-to-Peer Lending Sites
Peer-to-peer lenders are individuals who lend directly to other individuals. It is also called social or crowd lending. Their loan approval is quicker, but they require excellent credit scores.
Online financial companies like PayPal and Fundera offer loans depending on your creditworthiness. The application is entirely online and approval is in minutes.
Work on Your Credit Profile
Your business’ credit profile plays a big role in the loan approval process. You will need to work on:
? Credit score – You need to take remedial action against negative entries in your credit report
? Outstanding loans – You need a clear plan on how to clear any late and outstanding loans
? Financial statements – Ensure you have properly prepared andaudited financial and accounting statements. They are useful in showing business assets, cash flow, accounts payable and receivable, debt-to-credit ratios and other useful financial information.
Accessing a business loan shouldn’t be difficult if you are adequately prepared and informed on different financing products. Your business can grow optimally with prudent use of financing. Many global brands followed the same path.
Written by Ostriching.com