6 Tips to Finding the Right Business Loan
Preparing questions ahead of time can save you a headache later on.
- August 10, 2020
- 4 min read
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So you’re finally ready to start your business or you’re looking to expand. One way to fast-track your plans is by getting funding — a necessary step for many business owners. Funding is one of the biggest challenges for new businesses as you may not have established business credit yet but there are options.
While the idea of getting a business loan can seem intimidating at first, they actually really aren’t that bad and can open doors. With funding you can hire employees, finance equipment, buy real estate or really anything else that you need to help your business succeed. The great thing about loans is that they are usually pretty flexible in terms of how you use them which, in turn, gives you the freedom and autonomy over your business that you deserve.
Once you have decided to get a business loan, the next step is finding the right one for you. There are many options out there, how are you supposed to know which one is the best? All of the options can be overwhelming but there are steps that you can take to find an option that will work for both you and your business. Here are six tips to help you find the right business loan:
There are so many reasons why a business might need to take out a loan, and the right borrowing option for you will depend on what you need it for so start by determining why you need this loan and what you will be spending it on. Do you need it for hiring? Expansion? Equipment?
Knowing how you’ll spend the money will give you an idea of the form of financing you need. For example, a loan and equipment financing are different so knowing how you’ll spend will determine which type of funding you’ll seek. You will need to decide which type of loan you want to pursue based on what you will use the funds for.
After you figure out what type of loan you need based on what you need it to pay for, you now need to figure out how much money you need for it. There is also a wide variety in the amount of business loans – ranging from a thousand dollars to millions – so you definitely need to narrow down the type of loan you are looking for based on the amount you need. While you might want to apply for as much money as possible to increase your cash flow, this will mean larger payments down the road which could actually end up hurting your business. Furthermore, the more you take out the more interest and fees you will be paying on that amount – and that can rack up really quickly. So, it’s a good idea to add up your anticipated expenses, your revenues and figure out what the gap is go from there.
Just because you need a certain amount of money doesn’t mean that you qualify to actually get it. Many factors go towards a lender’s decision to approve your loan application but they almost always start with your credit – which is why it’s so important to have good credit. By doing your own credit check and being aware of this information, you can find loans that will be more beneficial to you. Other factors that lenders might consider are your current cash flow, your time in business, your current debt and the industry that you are in.
Now you need to figure out what loan you want to apply for and from which institution. There are many different sources ranging from traditional banks to online lenders. It can be pretty difficult for new businesses to get funding through banks, which is why many people are turning to platforms like Crowdfunding or procurement services like Seek Capital.
Take time to do your research and read reviews on potential lenders to make sure that they are legitimate and have good reputations.
Every funding source will go about things differently, so here are some things that you need to look for when considering the terms of different loans including interest rates, annual percentage rates, fees, and factor rates. You should also take a good look at their requirements, repayment terms, and any application fees that they might require. As you read the terms, determine if they fit your needs. For example, if the lender expects repayment to begin right away, ask yourself if that’s doable or if you require a grace period. The more you explore your own needs, the easier it’ll be to spot the right business loan for your unique situation.
Learn: 6 Ways to Use Financing to Grow Your Business
Lastly, before you sign on the dotted line, make sure that you have all the information you need in order to make the best decision for you and your business. If there is anything that is unclear to you in the documents that you have received, make sure to ask questions about it now rather than risk running into surprises later. Make sure you ask how you could potentially increase your funding if you end up needing more money than you initially estimated. You should also definitely ask about default and what would happen in that case. Some of these questions can be hard to ask, but it’s easier to ask them now and know the answers rather than finding out the answer when you’re already in a sticky situation.
More From Seek
- How to Get a Loan With No or Bad Credit
- 7 Fears Entrepreneurs Need to Overcome
- 3 Business Loan Application Details You Shouldn’t Overlook
Business Loan Resources
Best Startup Loans of 2020 - Get Between $5,000 and $500,000
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