Small Business Loans
Why is Business Credit Important?
Business credit is a company’s ability to be able to purchase something now and then repay it later.
Business credit should be kept completely separate from your personal credit to avoid being personally liable for your business debt. When you build your business credit, you’re basically telling lenders how much they can trust you to pay them back on time.
Business credit is important because it can benefit your company in many ways. Having a strong business credit score improves your chances of being approved for financing. Good credit can also provide you lower insurance premiums, better rates and lower fees, smaller deposits on new leases/services. Another benefit is that a stable score may help you with terms when securing suppliers.
When you have a strong score, you also increase the value of your company. If you ever want to attract investors in the future, it is important to maintain a strong business credit profile. Potential investors are going to look at and analyze every single little aspect of your business before they’ll even think about investing in it.
What are the Requirements for a Small Business Loan?
Typically when a small business owner requests a loan, the lenders will check the owner’s personal credit unless there is already established business credit.
It is important to maintain a strong personal and business credit profile. Lenders will also look at a debt-to-income ratio of a business. The higher the cash flow and income, the higher the chances are at getting approved. Another factor is the age of the business. Newer businesses have a hard time at obtaining a loan because there is a lack of history.
Most lenders like to see at least two years of history. Lenders will also assess the amount of current debt a business has and if they have collateral to back the debt. Another important factor is the industry your business is in. Lenders like to assess the risk of your business in determining if you get approved.
At the end of it all, it is best recommended to do your research on each lender. There are a ton of lenders out there that offer different loans for different situations. There are many factors to take into consideration when approving a business loan. The best thing to do is be prepared and research your options.
How to Apply for a Business Loan?
Getting a business loan for a small business is difficult due to lending standards.
Acquiring a loan is usually necessary to start or grow a business. Even though getting a loan is difficult, being prepared will better help you tackle the process and give you the best chance at success.
Lenders will often ask why your business needs this loan. You will want to determine the type of loan that is right for your business. If you are wanting the loan to start the business, it is extremely difficult to obtain one during your first year. Lenders will require cash flow to be able to provide a support system for repayment.
During your first year as a business owner, typically you will rely on business credit cards, crowdfunding, or personal financing. If you have an established business history with revenue then you broaden your financing options. These include: small business loans, term loans, business lines of credit, and invoice factoring.
The good news is, you can get a small business loan from several different types of lenders: banks, online lenders, and nonprofit microlenders. Once you determine which type of financing and lender is right for your business, it is recommended to compare options in regards to the APR and terms.
Here are a few recommendations with each type of lender:
- Use when you can provide collateral
- Use if you have a strong credit profile
- Use if you do not need cash fast
- Use if you are unable to get a traditional loan due to your company size
- Use if you lack collateral
- Use if you lack time
- Use if you need funding quickly