Meeting the capital requirements of a business isn’t easy. It takes a lot to establish a business and then, the expenses are hard to keep on track. You cannot rely on the savings every time, and some expenses are hard to cover with personal savings. To make sure your business runs smoothly and all your day to day expenses are covered without immense problems, business loans are there to assist you.
Business loans aren’t restricted to banks, but several other lending firms can help you in this regard. No matter what your business is going through, apply for a loan to get through the rough patch in your business. According to research, about 33 percent of the small businesses and approximately 30 to 35 percent of startups have to shut down due to the financial crisis. This is a big ratio, but the situation is under control, thanks to business loans.
Applying for a business loan seems easy, but there are some issues that people face. The issues are mainly due to a lack of knowledge about the necessities of loans. Before applying, do comprehensive research and get professional guidance so that you can save time and effort. Here are some necessary things that you must be aware of before getting a business loan.
- CLEAR PURPOSE OF OBTAINING A LOAN
The first step towards getting a business loan is to answer why you need one. Having a clear purpose for obtaining a business loan will help you identify the right type of business loan. The purpose will also make you work on your credit history too. Every business loan demands a different credit history. For example, merchant cash advance with bad credit score can have a toll on credit history. Therefore you should be clear with the purpose because the lending institution might ask you as well.
- UPDATED FINANCIAL STATEMENTS COUNT
If you haven’t gone through the financial statements for a week, it is about time that you check them. Every loan application asks for the finances of the merchandise, and any discrepancies in the statements might badly affect your loan application. Be it the balance sheet or the statement of equity, and all statements must be updated. Most business loan applications fail because the statements do not reflect the credibility to repay loans.
- HOW MUCH MONEY DO YOU NEED?
Now the question is, how much money do you need? Some banks and lending firms do not loan the exact amount the borrower has asked for. They will lend 70 to 80 percent of the capital amount you have asked. That is why you must research about the financial institutions and their methods of approving a business loan. Some may be lucky for you, and you receive the exact loan amount, but that depends on your credibility as well.
Ask for some extra amount so that you get the most appropriate loan amount. For example, if you need $10 million and the financial institution would loan 80 percent, ask for an extra ten percent on $10 million. You can also work on other lending options to meet the cash requirement.
- WORK ON THE COLLATERAL TOO
The majority of financial institutions ask for collateral. This could be your property or any luxurious item you have. Collateral is an expression of your credibility so that the lending firm can trust you with the repayment of the loan. If you don’t have any collateral, make sure you work on it before applying. It isn’t mandatory, but it is important. You can dodge many problems with collateral. Also, collateral can save you from the hassles your bad credit history can have.
- GOOD CREDIT HISTORY WORKS BEST
You might have heard that a good credit history always works in your favor. The statement is true for business loans. Whenever you apply for any kind of loan, the lender will always check your credit history. Checking the credit history before the lenders can save your time and effort. Good credit history is always a bonus point because a bad credit history brings many problems.
- ANY OTHER BORROWING OPTIONS?
Work on every possible loaning option you can find. The options could be your family, friends, banks, and lending firms. Friends and family may not be effective choices every time. Banks and lending firms, on the other hand, are always the finest choices. Lending firms have several options because every firm doesn’t have all the types of business loans. Therefore, check the options and go to the most appropriate one for you.
- KNOW THE INTEREST RATES FIRST
Interest is not always favorable for you. Keep the company’s situation in mind before you apply for a loan. A higher interest rate means you have to repay a high amount. The interest rate also affects the taxes you have to bear. Banks and good lending firms offer sound interest rates so that you can get the most out of the business loan.
- GATHER ALL THE DOCUMENTS
Loan application requires many documents, and if you have researched about it, you might know the most important ones to attach. Gather all the documents first, then recheck if you have all of them or not. Finally, fill in the application form and attach the documents.
- BORROW AS MUCH AS YOU CAN REPAY
Also, make sure you borrow what you can easily repay. Go through the updated cash flows, and if they allow you, ask for a heavy business loan. Otherwise, it is better to stick with the small capital amount. Repaying the loan is the toughest job, and you wouldn’t want any consequences of the loan in the future.
The lending firm will also check whether you can repay the loan or not. Before they reject your application, don’t ask for what you can’t repay.
THE FINAL VERDICT
Getting a business loan isn’t as easy as it sounds. Before applying for a loan, make sure you know all about loans. There are various types of loans, and every loan satisfies a different business requirement. Once you know all about the loan and its types, search about the necessities for loan application. Several minor details contribute to the perfect business loan application. Gather all information, documents, and then fill the application. Getting professional advice is another better and more convenient option. Filling out several application forms is not going to work, but the one perfect application will help you get the business loan.