Are you experiencing setbacks in your business due to a lack of funds? If yes, this article is for you. It teaches you all you need to understand about business loans, how they work, and how to get them.
To Understand How to Get a Business Loan
- Know What a Business Loan Is
- Understand How Business Loan Work
- Check Your Personal Credit Score
- Check Your Business Credit Score ( if any)
- Fix Any Errors or issues You Find on Your Credit Report ( Personal and Business)
- Recognize The Types of Business Loan
- Decide Why You Need The Business Loan
- Learn The Steps to obtaining a Business Loan
- Evaluate The Pros and Cons of a Business Loan
Are you ready? Let’s start.
1. Know What a Business Loan Is
To get a business loan, know what it is. A business loan is the amount of money you borrow to start or operate a business. Use a business loan to purchase real estate, pay employees, purchase inventory, acquire business facilities, or upgrade technology.
Understand that business loans come with interest rates and repayment terms, which your lender determines.
2. Understand How Business Loan Work
To acquire a business loan, you need to know how it works. Your lender borrows you a certain amount of money or a line of credit and your business agrees to pay the money back with interest within a certain period.
Agree on a repayment period with your lender; Your lender may want a daily, weekly, or monthly repayment.
Keep in mind that business loans are either secured or unsecured. A secured loan requires collateral while an unsecured loan requires no collateral but a personal guarantee that you are ready to assume liability if your business can not repay the money.
3. Check Your Personal Credit Score
To obtain a business loan, assess your personal credit card. Visit a free credit scoring website or Credit bureau to check for your personal credit score. Check with your lender or card issuer, your lender can also give you a number to login into your account to get your credit score.
4. Check Your Business Credit Score
To get a business loan, examine your credit score. Know that your business credit score is the major factor lender consider to know if you can repay the money. Note that not all business has a credit score especially if your business is new.
Your ability to access funds is dependent on your credit score and these three major credit reporting agencies – Dun & Bradstreet, Experian, and Equifax.
5. Fix Any Errors or Issue You Find on Your Credit Report (personal and Business)
To obtain a loan, get rid of any error that is in your credit report. When you observe an error in your report, dispute the error. Explain in writing what went wrong with your credit reporting company ( Experian, Equifax, or TransUnion). Attach copies of your documents to the dispute to support your claim
6. Grasp Types of Business Loan
To get a business loan, know the various types of business loans available. Carry out your research to select the best business loan. To determine the type of loan you need, find out factors like qualification requirements, loan purpose, and loan term. Here are some types of business loans.
- SBA Loan is one of the most affordable for all small businesses. It is of low cost and supported by the government, but it is known for its long processing time.
- Terms Loan: keep in mind that this loan helps your business to borrow money from traditional banks, Credit unions, or online lenders. Repay the money over an agreed time and it often comes with fixed interest.
- Equipment loan: be informed that this loan assists your business to pay for large and expensive equipment. With this loan, the equipment you bought acts as collateral. You lose the equipment if you default on your payment.
- Commercial real estate loan: consider this loan, it helps you purchase a new or existing property such as an office or warehouse.
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7. Decide Why You Need a Business Loan
To get a business loan, specify the reasons you need the loan. You may need a business loan to establish a business, purchase equipment or inventory, or pay off debt. Know what you need the business loan for, to help guide you in your decision-making.
8. Learn The Steps to Getting a Business Loan
To get a business loan, understand some basic steps in getting it:
- Learn what lenders look for. Evaluate the requirements of your lender before applying for a business loan. Lenders examine a lot of factors such as your revenue or cash flow, time in business, personal credit score, business credit score, collateral, and industry.
- Decide on the type of loan. Consider loan options and decide the type of business loan you need. Conduct your research and choose the most appropriate one that suits your need.
- Write a business plan. Write a comprehensive business plan before you apply for a loan, especially when you need a loan from a traditional bank. Note that with your business plan, your lender is informed about your business goals. Some online lenders do not need a business plan.
- Keep in mind what lenders require. Know that traditional banks and online lenders have varying lending requirements. Banks evaluate your credit score to determine whether or not to borrow you a business loan depending on your credit score while some online lenders do not make a such requirement.
- Compile your documents. To apply for a business loan, gather every necessary document you need for your approval. You need your business plan, personal and business credit score, business bank account statement, tax returns, relevant legal contracts, applicable licenses, and registrations among many others.
- Choose a Lender. Identify a lender when you decide on the type of loan you need. Research to find out your lender to provide a suitable service for you. Choose from any of the direct lenders, traditional banks, credit unions, or online lenders.
- Complete your application. Finish your application after the process of proper documentation. Submit your application and expect a response between 24 hours and several weeks depending on the type of loan you need.
9. Evaluate The Pros And Cons of a Business Loan
To obtain a loan, consider the pros and cons of a business loan
Pros of a business loan
- Understand that the business loan charges low-interest rates in contrast to credit cards and other financial institutions
- Enjoy full control of your money, banks can’t influence how you spend your money.
- Enjoy easy and convenient access to business loans.
- Enjoy 100% of your profit, unlike investors who want a particular percentage of your profit.
Cons of a business loan
- Note that not all businesses can qualify for a business loan. Confirm if your business can meet up with the necessary criteria.
- Keep in mind that you may not have access to the full money you applied for.
- Manage your business loan to avoid running into a cycle of business debt.
Recap
To learn how to get a business loan, know what a business loan is, understand how business loan work and learn the various types of business loans. Decide why you need the business loan and learn the different steps to getting a business loan, then evaluate the pons and cons of a business loan.
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