4 Tips For Getting A Business Loan
December 15, 2021
What are some tips for getting a business loan?
- Do your research about lenders
- Evaluate what you can afford
- Prove that you can pay it back
- Be ready to pledge personal assets
Starting a business requires a large amount of money, and the main way entrepreneurs can secure this is through loans. Business loans are very common because they’re a good way to get a business up on its feet and running. Small businesses benefit greatly from this because the typical startup begins from scratch.
Even if you already know how to create a business startup budget, applying and processing for a loan can still be intimidating. We’ve compiled some tips for getting a business loan to help your chances of securing that much-needed business loan. Keep reading to learn more.
Do Your Research About Lenders
Some startup owners are only beginning to venture into the world of business. Because of this, many entrepreneurs are not aware of the possible lenders for small businesses. Here are some of them:
- Direct online lenders: These lenders directly make small business loans through an online process. An example is PayPal, which provides short-term loans from $5,000 to $500,000.
- Banks: Large banks can lend money to small businesses, but the process is slower and more demanding than others.
- Peer-to-peer loans: Some websites allow loans between lenders (individual or institutional) and small borrowers.
Choose the right lender depending on your financial status and needs as a business. A bank would be able to provide a big sum of money, but it would be slow. Direct online lenders are faster if you need the cash right away.
Evaluate What You Can Afford
Before you try to get a loan, you have to calculate first how much you can afford. Examine (or estimate) your business’s monthly cash flow. When you get into a loan, you will have to repay it every month. Some lenders even require daily repayments. Take into consideration how much you can afford to pay every month including the repayments and other expenses.
Ideally, your income should be about 1.25 times larger than your expenses, loan payments included. Avoid making loans that are too big or too small, and it will serve to help your business instead of bringing it down.
Prove That You Can Pay It Back
The most important thing that lenders will have to find out is if you would be able to pay back the loan. When you try to secure a loan, you have to be ready to show your financial capabilities. Prepare financial records — regular cashflow statements would be helpful — and your business plan. Make sure the reports are thorough and prove that it is within your ability to repay the loan.
While it’s true that you’d want to make a good impression, being honest about your finances takes precedence. Disclose possible issues about your cash flow or ability to repay the loan. All of these would be discovered even if you don’t declare them, so it’s better to be candid about your financial situation to build trust.
Be Ready To Pledge Personal Assets
If you’re a startup or small business owner, then there’s a chance that you don’t have enough assets to secure a loan. It sometimes calls for the entrepreneur to pledge their personal assets as collateral in case they can’t repay the loan.
The process of securing a loan for your business is more often than not necessary for its success. Being familiar with lenders, knowledgeable about your finances, proving your ability to repay the loan, and being ready to personally guarantee the loan are only a few steps you can take. With these tips for getting a business loan, you can be more ready for the entire process.
Other than securing a loan, there are plenty of factors that go into starting and maintaining a business. As a veteran in the field, Benito T. Keh likes to extend his help to aspiring businessmen and upcoming entrepreneurs. To contact him, simply send him a message through this link to get acquainted.