So you’re considering starting up your own business- that’s great news! Building a business from scratch takes a lot of work, and more importantly, the funding to get the company off the ground. However, without the right know-how, you may struggle to find a good small business loan.
How can you go about searching for a great small business loan?
If you want tips on acquiring a loan, you’re in luck. Here’s what you need to know to start searching for small business funding for your new company.
What Types of Business Loans Exist?
Before you start shopping around for a small business loan, you need to determine what type of business loan you need. There are multiple types of loans available for small businesses; each type has its own terms and conditions. You can choose your loan depending on the specific needs of your business.
The different types of small business loans you can apply for include, but are not limited to:
- Working capital loans
- Small business term loans
- Equipment loans
- SBA small business loans
Do your research ahead of time to figure out exactly what type of business loan you need. Read up on the terms of each small business loan to see if you qualify.
Start Researching Lenders
Just like there are many types of loans, there are many types of lenders that you can get your small business loan from. It’s important to shop around and research the different lenders in your area to see who would work best for your needs.
There are 5 main types of lenders that you can get a small business loan from: direct online lenders; large commercial banks; local community banks; peer-to-peer lending sites; and bank lenders that are backed by SBA guarantees.
Where you get your loan from will depend on how quickly you need the money, as well as how long you have been in business. Online lenders, such as e-banks, are great if you have not been in business long and lack collateral; you will be able to get your loan quickly and easily through these types of lenders.
Meanwhile, if you have been running your business for at least 2 years, you should get your small business loan from a community bank. It may take a bit longer for you to get the loan using this method. However, you are more likely to get good terms and conditions than you are with online lenders.
Put Your Financial Statements in Order
Any lenders you visit will want a look at your company’s financial records. Look through all of your financial statements and accounting records and make sure they are complete, thorough, and accurate. You may want to hire an accountant to offer advice on what your lender might ask.
Some lenders will want you to have your information reviewed and audited by a certified public accountant. This is not required by all lenders, so double-check with any lenders you are considering so that you can get them the information they need.
Study Your Credit Score and Risk Profile
Whether or not you will qualify for a small business loan will heavily depend on your credit score and risk profile. This is to make sure that you will pay back your business loan.
Your credit score and credit history will be under scrutiny by any lender you visit. They will check how often you borrow money, as well as how quickly you pay back your loans. Review your own credit score and history ahead of time and be prepared to answer questions from your lender.
Any outstanding loans or debts will also be looked over by lenders. If your cash flow is deemed too low to pay off your existing loans, you may be denied a loan; you will be seen as too much of a risk to any potential lenders.
How much time you have spent as a small business owner and any investors you have in your company will favor you in the eyes of a lender. After all, having investors and experience shows that you are a quality business owner who can pay back any loans you receive.
Know When to Back Out of a Loan
Knowing when to back out of a bad loan is just as important as spotting a good loan. You may not be able to recognize a bad loan from the outside looking in; once you see a bad business loan for what it is, however, you need to get out as soon as possible.
There are lenders out there who offer predatory business loans. These loans state the lender can take control of any of your business assets should you default on your loan or if you fail to pay; this takes advantage of small business owners, especially if they are struggling to get off the ground.
While not all business loans are created equally, you need to pay attention to the exact terms of each and every loan you are considering applying for. The last thing you want is to fall victim to a predatory lender.
Start Shopping for Your Own Business Loan Today
Now that you know what to look for in a business loan, you’re ready to start searching for a lender near you! Search for community bank lenders online as well as in person. You never know what great lenders you might find!
Are you searching for a lender to give you the perfect business loan for your company?
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