All business owners will find themselves in a situation where they will need funds to keep their enterprise running. Having an established relationship with a financial institution will help towards securing a loan.
Business loans are important not only for start-up companies but also for established ones as it provides alternative financial aid for short-term projects. There are different kinds of business loans including secured versus unsecured, business-only, acquisition, et cetera. It is equally important to decide carefully what type of business loan to apply because they vary in terms of payment. You also have to ask about pre requisites on payment terms and determine how long it will take before you are able to repay your debt. Take note that the longer the payment schedule, the higher the interest rate you need to settle. Once everything is final, here are the pointers on how to get a business loan:
Before getting a commercial loan, ask yourself the following questions:
- Where/What is the loan going to be used for?
This is a very important aspect of your decision to get a loan. If you are well aware of the purpose where the fund is going to be used, you will save yourself from the possibility of wasting resources. Determine also if you can outsource the money from alternative routes aside from securing a business loan. If so, you can save the amount which is supposed to be paid as part of the loan’s interest rate.
- What is the length of the loan?
Business loans are short-term but they are renewable. This is a characteristic of this type of loan that many businessmen take advantage of primarily because they can apply for a new loan once the previous one is paid in full. Evaluate whether the project you intend to use the fund for will run for a long time in order to justify the need for a commercial loan.
- What assets can you use as collateral?
Nowadays, it is difficult to acquire an approval for unsecured loans especially when the aftermath of the global economic crisis was immensely felt both by small and large scale businesses. This is why only secured loans, those with collaterals, are the ones that can be approved to loan applicants. Think whether you have properties or investments which can be made into collaterals.
After answering these questions sufficiently, follow these steps to begin applying for a business loan:
- Gather your financial statements. The most recent ones are the most ideal. At least five years’ worth of financial statements including tax returns and receipts as well as credit reports is important. It is essential that you are absolutely honest to the loan assessor about your present credit standing as they will conduct credit investigation themselves. When they find out that you have forged any single document, it is sufficient grounds for your application to be disqualified.
- Establish a solid network with local bankers. If you are a true-blood businessman, you must have anticipated the need to establish strong relationships with financial people. At some point in time, you will need the help of a reliable and influential banker to process your applications. Sometimes, all you need is some friendship with them.