Do you know that business loans power more than 50% of American businesses?
To get your business off to a smooth start, apply for a business loan of your choice. Thinking of the amount you may need, where to get the business loan, and how to apply? If you answer yes, then this is the perfect time for you!
This article walks you through how much you can get for a business loan. Read this article to the end to learn how the process works.
Ready? Let’s dive in!
To determine how much you can borrow on a business loan:
- Analyze Your Company’s Cash Inflows and Outflows
- Review Your Current Level of Indebtedness
- Calculate How Much Extra Debt Your Company Can Take
- Determine the Type of Debt You Need
- Compare Potential Lenders
- Study Business Loan Eligibility Requirements
- See if You Qualify for a Specific Business Loan
- Zero in on a Business Lender
- Gather Your Paperwork
- Apply
1. Analyze Your Company’s Cash Inflows and Outflows
To decide on the amount you can borrow for your business loan, analyze your company’s cash inflows and outflows. Cash flows are the money going into your business, while outflows are the money leaving your business.
See if you have a positive cash flow to pay i.e. you have more money entering into your business than leaving it. This signals to lenders that your business can pay back whatever amount you borrow from them. To monitor your cash flow, use financial analytics software QuickBooks, Xero or Wave to see a graph presentation of cash Inflows and outflows in your business.
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2. Review Your Current Level of Indebtedness
To figure out how much you can borrow on a business loan, review your current level of indebtedness. Check your debt ratio to know the financial status of your company. Divide your total liabilities by your total assets. If the liability ratio is higher than your assets, you are trading on a high level of Indebtedness. Reduce your debt level by paying off your long-standing loans or service your debt by reducing the accrued interest.
3. Calculate How Much Extra Debt Your Company Can Take
To ascertain how much you may take out from a business loan, calculate how much extra debt your company can take. After analyzing your inflows and outflows as well as debt ratio, examine if your company can still take out more loans.
To do this, check your business credit score if it’s high enough to apply for a good loan. Study the current interest rate and calculate your business collateral capacity. In addition, determine the loan amount and look for friendly lenders that can consider you. Evaluate your business if it can pay back the loan on time. Also, check the terms and conditions of the loan. You can engage a legal practitioner to clarify the terms and conditions of the loan for you.
4. Determine the Type of Debt You Need
To define the amount you may get from a business loan, determine the type of debt you need. To know the type of loan you need, first discover why you need a loan for your business. Choose a business line of credit (LOC) if you need a loan to maintain cash flow, build your business credit or expand your company’s operations. Go for equipment financing if you need a loan for buying equipment for your business. Pick a working capital loan if you need cash to, say, buy new inventory or take care of payroll.
Secondly, understand the concept of secured loans and unsecured loans. You may need to settle for a secured loan if you don’t have a business history or your business credit score is low.
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5. Compare Potential Lenders
To set the amount your business can receive from a business loan, compare potential lenders. Before you choose a lender, consider the repayment terms and interest rates.
Consider online lenders if your business is new or you are looking for the easiest way to apply for a loan. Also, online lenders generally offer different kinds of loans including term loans, lines of credit, microloans and cash advances.
Opt for traditional banks if you want loan types with relatively low interest rates. Nevertheless, be aware that traditional banks have the strictest application requirements. Microlenders are good for you if your business is small, new, or has a low credit score.
6. Study Business Loan Eligibility Requirements
To know the amount you may obtain on a business loan, study business loan eligibility requirements. Check your business and personal credit scores. Lenders evaluate your personal and business credit scores to determine your creditworthiness.
A personal FICO score below 580 may be a turn-off for most lenders. Observe your annual revenue, profit and time in business. Traditional lenders such as local banks require two years of running before they can approve your application.
Review the collateral requirements if you are dealing with a secured loan. In addition, pay attention to the nature of the business you run. Some businesses like adult entertainment, not-for-profit ventures or gambling businesses may be a keep-off zone for most lenders. Other requirements include your business credentials.
7. See if You Qualify for a Specific Business Loan
To get the cash you may need from a business loan, see if you qualify for a specific business loan. To know if you qualify for a specific business loan, study the business terms and conditions and check if you meet those requirements.
Having a low FICO score may restrict you from getting an unsecured, low-APR business loan. Little or no business history may hinder your chances of getting a business term loan. Most lenders also demand a personal guarantee i.e. you must pay with personal funds if your business collapses.
Other determining factors are your business size, business plan, financial statement and business loan proposals.
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8. Zero in on a Business Lender
To obtain your desired amount on a business loan, zero in on a business lender. To choose a perfect lender for a business loan, assess the lender’s degree of flexibility. Perform background research on the lender (including online reviews) and check if the company offers exceptional customer service.
9. Gather Your Paperwork
To specify the amount you can get on a business loan, gather your paperwork. Provide necessary documents which include bank statements, personal and business tax returns, business plan, balance sheet, payroll records, business insurance plan, etc.
10. Apply
To decide on the amount you need on a business loan, apply to your lender. Prepare to add supportive information such as your name, social security number, preferred loan amount, annual revenues, and loan purpose.
Recap
To decide the amount you need on a business loan, analyze your company’s income and expenses. Assess your current level of indebtedness, then estimate the amount of loan your company can afford.
Following that, choose the type of loan you need, compare potential lenders, and make sure you understand business loan eligibility and requirements.
In addition, check if you are eligible for a particular loan and choose a lender that meets your loan needs. Lastly, get your credentials and apply for the loan.
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