7 things you need to know before getting a business loan
Sooner or later, the idea of a business loan will naturally arise, whether you are looking to expand or sometimes need to pay your bills. Recent PPP loans have proven to be very helpful throughout the coronavirus pandemic, but the program has now ended.
Luckily, you can still find a Paycheck Protection Program alternative, but you’ll probably have to do it the old-fashioned way – find a lender, shop around, consider interest rates, and so on. Here are the most important considerations before getting a business loan.
Get a business plan
Writing a business plan is a must – it’s one of the factors that most lenders will ask about. Plus, he’ll give you some tips on your next step – a must for any business owner. When it comes to lenders, they want to make sure your business is credible and on the right track.
You need certain skills and knowledge. You need to assess your competition, goals, past expenses and income, and future costs. You need to analyze the market and find ways to grow your business.
Decide on loan amount and purpose
You can never get a loan if you just think you need the money. You need to write everything down and based on your business plan you need to figure out how much money you need, as well as how you intend to spend it to ensure profitability.
These two aspects must be crystal clear for the lenders, but also for yourself. This type of research may reveal that you need more or less money than you originally thought. If you’re lucky enough, you might not even need a loan after all.
Be aware of your warranty
Chances are you won’t be asked for collateral if you need $10,000 or a small amount of money. But if the loan is big enough, the lenders will need something to help you gain credibility. With regard to professional equipment, the equipment is likely to be used as collateral.
Other than that, you need to be aware of any guarantees you might need. You need to know how much your stuff is worth and whether or not you’re willing to take a risk. When you get a business plan, also think about all your assets and price them realistically.
To find the best lender, it is not enough to go to your bank. Sometimes you may need to shop around. Different types of loans are more suitable from different lenders. Once you know how much you need, you’ll need to find the best deal.
A broker is probably your best option because they do all of this research for you – find an independent broker, though. Other than that, if you choose to do it all yourself, pay attention to the interest rates, fees, and loan term, which will dictate the monthly repayments.
Prepare your financial statements
There are other reasons why you will need financial statements. First, they might be required by the lender. They need to know a bit more about the company’s past, expenses, income, etc. before making a decision.
Second, you can use these statements yourself. You may have a seasonal business – it makes sense that sales are low now, but they can skyrocket in a few months. If you notice a trend, you should take it into account and maybe wait a little longer.
Check your credit history
Your credit history is extremely important to lenders when applying for a loan. Start checking it long before you apply – in fact, you should make it a habit and check it several times a year. Report and fix errors before you actually need them.
The goal is to show your potential lender that you are financially responsible. Potential mistakes in your credit history can prevent you from getting a good deal, hence the need to sort everything out upfront.
Calculate long-term costs
Your loan will come with a price. Besides the principal, you will need to consider the interest rate, as well as any fees associated with the loan. The principal will always be the same no matter who you choose. All these expenses then make the difference.
Most of this stuff is clear, but you should check the fine print anyway. You should always understand all terms and conditions to estimate the true cost of the loan. Do this for every offer you receive to ensure a good final choice.
Ultimately, just like with personal loans, there will be all sorts of considerations you need to keep in mind before taking out a business loan. Although some of them may seem insignificant, they will actually save you money in the long run.