The quest for capital is never-ending with some states offering more access to business loans than others. There’s so much a business owner like you can do to launch, grow, and expand your business with the help of financing. Of course, you have to ready yourself and your business to apply for the loan, meet its obligations, and know the consequences of default.
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A default is a no-no at all cost, something that you can avoid when you know these basic truths about business loans.
1. The 5Cs still stand, add confidence to that.
Sometimes the 5Cs of credit boil down to winning the confidence of your lender that you have the ability to pay off your loan. Of course, your credit history with no missed payments on installment debts and credit cards will vouch for that.
And a substantive asset to secure the lender’s interest in case your loan goes bad can seal the deal. Fixed assets such as land, buildings and equipment are a strong contender for collateral. They don’t lose their value as quickly as receivables, inventory and raw materials.
2. Business loans and consumer loans are not created equal.
Lenders place a higher bar on commercial loans than on loans made to individuals. For a business to qualify for a commercial loan, it should have an operating history of two years and is generating profit at that.
The business owner’s personal qualifications and the company’s viability play a role in obtaining financing for new trucks, supplies and so on. To some extent, your lender might require you and/or spouse to execute a personal guaranty on the business loan.
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3. Interest rates constitute just one cost of borrowing money.
It would be great if a bank gives you a lower rate but what if it’s only willing to lend you half of what you need? In this case, the availability of funds is more important than getting a lower rate.
Find a lender that can lend you the desired amount, which should be borne out of careful deliberation. Consider the rate at the same time. Pay attention to the fees as well. The loan’s rate and fees are embodied by the annual percentage rate or APR on fixed-rate loans.
4. Big banks vs small banks.
Big banks can be strict when lending money to businesses that are new, have yet to generate profit, or in going concern. This causes some business owners to look for financing in credit unions or smaller banks.
It’s generally known that smaller banks tend to be more lenient in giving credit to start-ups compared with the more established ones who cater to large clients.
5. Alternative loans exist.
If traditional financing is out of your reach at this point, there are alternative lenders offering loans at more relaxed terms.
First off are microloans and financing options guaranteed by the U.S. Small Business Administration (SBA). So are lenders that purely based online and operate peer-to-peer lending platforms.
Alternative lenders can more forgiving to bad credit borrowers and boast faster approval rates. With respect to SBA loans, their repayment is longer and interest rates are comparatively lower than traditional financing but the loan process can take longer.
Never stop looking until you find the financing package that makes the most business sense.
