3 Things To Note When Applying For A Small Business Loan

Starting your own business can be a rewarding and liberating experience

. Being your own boss is something that a majority of people dream about. However, you should keep in your mind that your business needs money in order to stay alive. Finding funding for your company is not going to be easy. Knowing what lenders are looking for will help you when applying for a small business loan.

Your Business May Need to Apply for Smaller Loans At First

Most banks are not going to lend your business any money unless you have a track record of success. Success means that you have revenues coming in on a regular basis. At best, a bank is only going to lend a small amount of money to a business that does not yet have a credit history. You may even find that you have to take out a loan for small business using your personal credit information. Applying for a business credit card with a smaller balance can give you an emergency small business fund.

Consider using a bank loan as one of many different ways to get financed when you are starting up. Paying off a small loan when the business is just starting will establish a relationship with the bank. This relationship can then be leveraged to get better loans in the future. Waiting until your company starts growing to ask for a loan could get your request denied.

Securing The Loan with Collateral May Be Necessary

Obtaining a small business loan is not easy by any means. Getting a loan without collateral is going to be almost impossible. Most new companies are going to have to secure the loan with some sort of collateral. Business owners may find that they have to put up their home in order to secure the loan. However, you can secure the loan with business property, equipment or anything else of value that you or your company owns.

Putting up collateral to secure the loan will usually give you better loan terms as opposed to an unsecured loan. Your company may consider going with a secured loan even if it could qualify for an unsecured line of credit. Paying back a loan that has a 5 percent interest rate is much cheaper than paying off a loan with a 15 percent interest rate.

Keep in mind that you can get a secured loan without having to go through a bank. Merchant cash advances, factoring loans and other alternate lines of secured financing are available. Always keep an open mind when trying to secure financing for your new company.

Incorporating Your Business May Increase Your Odds of Approval

Banks are more likely to give loans to businesses that have gone through the process of incorporation. Your odds of getting a loan go up because a corporation gives your business a more professional appearance. Corporations are usually set up to last for a long time. A company that is run by a sole proprietor may come off more as a hobby.

Corporations are also more likely to get a loan because of the steps required to become a corporation. A board of directors needs to be put in place, annual meetings need to be held and your corporation may have shareholders. All three of these factors increase the pressure on the business owner to turn a profit as soon as possible.

Getting a loan for your small business can be tough. Understanding what the banks are looking for can help you get that loan. Putting up collateral, establishing a relationship with the bank and incorporating your company increase your odds of getting that loan. Everything else is out of your control.

by: Barry Newport

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