Getting a Business Loan
If there is one piece of advice that any successful business will give you, it will more than likely be that ‘you have to spend money to make money.’ Whether you are just starting out in business or already have one, if you really want it to grow, you are eventually going to have to invest money back into it. Whether that is in the form of new equipment, a larger space, advertising, pay off debt or even to get cash flow going, a business loan may be the best option for you and your business. There are many things to consider before getting a business loan.
While many of the larger business already have the extra cash to afford their expansion. That may not be the case for your business. This can make paying for all of these additional costs, as well as by maintaining the cost of running a business, almost impossible. It really is a difficult spot for your business to be in. You need to invest in your business to grow. But how do you invest while maintaining all of the operational costs?
This is exactly why a business loan may be the answer to all of your problems. While most people view any type of loan as a ‘negative’. It can also be the perfect solution to getting the capital you need to move your business forward. Here are some things to consider before getting a business loan that will help you the best loan option for your individual business needs.
Things To Consider Before Getting A Business Loan
Prior to getting any type of business loan, you need to ask yourself if this is the absolute best solution for your business. Maybe finding some investors may be a better option for you. If you are in need of extra capital and don’t have any type of timeline to pay the loan back, finding an investor is something that you may want to seriously consider.
Another benefit of having an investor is that they will be able to give you advice when it comes to growing your business. This information can be invaluable if you are unsure about how your business should move forward. Before any major decision is made, it is always best if you weight the pros and cons of every option available to you.
Can You Afford the Loan?
This is one of the biggest things that you must consider before any type of loan talk should even be started. Most will tell you that taking loans out when you can’t afford them isn’t necessarily the recipe for great success. So before you even think about any type of business loan, take some time to get intimately familiar with every aspect of your business’s cash flow. How much money is coming in and how much money is going out? Once you know these numbers, it will give you a better idea of how much you will be able to afford loan payment-wise.
A simple equation that you can do to get a rough estimate of how much you will be able to afford loan payment-wise, is to calculate the cash flow for one month. Next, multiply that number by 12 (12 months in a year). This will give you your annual cash flow. This will let you know what you are able to afford if nothing in your business changes. The last thing you want to do is get a business loan that you are unable to pay back.
Are You Eligible to Receive a Bank Loan?
When you have decided that a bank loan is the best option for your business loan needs, getting a loan from a bank is probably the cheapest money that you can get. Due to this, it can also be some of the hardest business loans to get. There are typically three factors involved with getting a business loan from a bank.
- You need a minimum of three years worth of tax returns.
- Must provide proof that your business is profitable.
- You need to have good business credit, as well as personal credit.
So you check all of the boxes and are going to the bank for your business loan. Not so fast. Besides having to meet certain criteria for any type of business loan approval, there are also ways that you can be disqualified from getting your loan.
- You are in an industry that is considered ‘high risk’.
- Your business income has too much concentration. Which is having the bulk of your business coming from only one or two clients?
Once you are able to meet all of the minimum requirements and no disqualifiers. Then you need to provide some sort of collateral. It is not unheard of for a bank to require the rights to some or all of your business’s assets. Or even some of your personal assets as well. It all just depends upon how much money you’re trying to borrow. At Nonstop Signs, we get all of our business loans through Chase and Wells Fargo Bank.
Which Loan is the Best for Me?
While meeting all of the requirements for a business loan from a bank, can be tricky, all is not lost if they are unable to approve you. In fact, there are several different types of business loans that you can explore. Those loans include:
- Business Acquisition Loan
- Debt Financing
- Franchise Start-Up Loan
- Line of Credit
- Long-Term Loan
- Professional Loan
- Revolving Check Credit
- SBA Commercial Loan
- Secured Working Capital Loan
- Short-Term Loan
- Start-Up Loan
- Unsecured Working Capital Loan
Do You Have Any Collateral?
There are many different types of business loans available depending upon your businesses needs. Most of them will all come down to one question, do you have any collateral? This is one of the main things to consider before getting a business loan.
Does your business have any assets that you can use as collateral for one of these loans? The more collateral you can put up for the loan, the lower the rate. And also the more capital you will be able to access.
Depending upon the lender you decide to get your loan through, you may be able to use different types of collateral. For example, one lender may allow you to use your business equipment to lend against. A different lender may allow you to use your businesses monthly recurring revenue (MRR) to lend against. The best thing you can do here is to figure out what the best asset to use as collateral would be and then start to research lenders who do better with that.
How Long Do You Want the Contract to be?
Once you have found the best lender for your loan, the next step is to figure out how long you will need to pay it all back. Depending upon the business loan lender, loan terms will vary. The one thing you always want to be sure to do no matter what, however, is to make sure that there are no pre-payment fees. Or penalties if you decide to pay your loan back early. Just be sure to ask before you sign on the dotted line.
I Can’t Repay my Loan, Now What?
With the things to consider before getting a business loan, be sure to find out what the repercussions may be if you miss or can’t make payments on your loan. Most lenders will seize any collateral and even go after your personal assets if you default on your loan. This is why it is always important to make sure that a business loan is the absolute best way to move forward. If you are unable to repay the loan, the bank will not only go after your business assets, but they can and more than likely will go after any personal assets you own as well.
Starting or growing a business can be an exciting, rewarding career path. While it can and probably will get tough financially, a business loan is a great way to help you take your business to the next level. However, this same business loan can potentially lead to the loss of your business. As well as personal assets as well. So before you take out any type of loan, be sure that you go over all the things to consider before getting a business loan. Once this is done, always make sure that you meet any requirements. And do your research to figure out what the best type of loan would be for your business.
Now that you have learned the things to consider before getting a business loan, you can figure out what kind of loan you need. Get together some collateral and figure out how long you need the loan to be. Last but not least, be sure to make all of your payments to prevent any legal action from your lender. And you will have successfully applied, received and repaid a business loan.