Many small business owners submit applications for small business loans every year. However, only a few of them manage to obtain them. Most of them are not aware of the different aspects of small business loan. They don’t even bother to find out if they actually qualify for one. Here is a low down on the different aspects of small business loans:
The loan amount
As a small business owner you cannot get the complete amount that you desire to obtain as a loan. Every small business loan lender has a ceiling. There are banks that offer loans of six or seven figures; but taking a small business loan from a bank is not often the best route. Your best option is an alternative lender.
There are many alternative lenders who offer small loans to businesses. You can apply for these loans right from the comfort of your home and upload all your documents online. Although you might have to pay a higher interest rate than what you would normally pay a bank, you will still save dollars since you will be debt-free in a shorter span of time. If you need a loan that amounts to less than $50,000 it would be best to check for SBA microloan programs.
The loan purpose
Almost every lender would like to know why their borrowers want to borrow money from them. So be specific whenever you are applying for a small business loan. For instance, if your plan is to buy equipment from the money that you get, you will have to specify what equipment you want to buy. You can use small business loans for various purposes such as refinancing existing debts, funding construction projects, and covering seasonal downturns. Make sure you use the loan for the purpose that you mention in the application.
Your credit score plays a major role when applying for a small business loan. This will tell the lender about your ability to repay the loan. A good credit score will help you obtain a loan at a better interest rate. You should ideally aim to build a credit score of 600 or more. If it is above 700 you are at a great position.
Time in Business
Being in business for a long time shows you as a successful business owner who is responsible when it comes to repaying loans. Your business has to be at least two years old if you want to obtain a loan from a bank. However, you can always get your money from an online alternative lender even if you have been in business for only one year now.
Most lenders would like to see a business plan before they fund a business project. It is always better to be prepared with one even if you don’t have to submit it to your lender. Make sure you lay out your financial goals as well as your qualitative business goals in your business plan. Do some research on the potential opportunities and challenges you may have to face.
There are many more such aspects you need to know about small business loans.
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