Do you need financial help when it comes to your business? If you’re considering taking out a loan, make sure you read this quick guide first.
Expanding your services, purchasing equipment, and boosting your working capital are some reasons for taking out a loan. You may think applying at any lender is the fastest way of securing financing for your business.
Before you go running to apply at the first lender you find, it’s vital to consider what comes with it. Believe it or not, getting a loan impacts your personal and business financials. Don’t know what we mean?
We’ve got you covered. Here are 5 things you should know before applying for a business loan.
1. There Are Several Types of Business Financing
Do you need funding to buy equipment or inventory? Maybe you need revolving credit to improve your cash flow. Either way, you can apply to several types of business financing.
Equipment financing, lines of credit, short and long term loans are some of the most common types of financing you may consider. Before applying, you should contact your lender to learn which type of loan fits your needs.
2. Lenders Will Consider Your Credit Score and History
Business owners often think lenders won’t consider their credit score and history, but that’s far from the truth. No matter how long you have been in business. Banks will conduct a hard credit check to approve financing for your business.
If your credit score isn’t great, you may consider seeking debt relief before applying for a business loan. You may be asking yourself, is credit consolidation a good idea? Yes, consolidating your debt is a great option to lower your outstanding balances and boost your credit score.
3. You’ll Need to Submit Proof of Your Personal and Business Income
You may think your bank will only take a look at your business financials. However, your lender may request proof of your personal income. Be prepared to provide copies of your tax returns, pay stubs, W-2, among other documents.
The bank may also request business tax returns, Profit & Loss statements, and even bank account statements. Before applying, you may ask your lender’s representative about what documents you’ll need to submit.
4. Your Lender May Ask for Collateral
Depending on your personal and business financials, certain lenders may request you provide collateral. This term refers to an asset you offer as security on your loan. Equipment, land, buildings, inventory, and vehicles are some of the most common types of collateral you may offer your lender.
5. Make Sure You Can Repay the Loan Before Applying
It doesn’t matter if you check all the boxes to get approved. As a business owner, you should always make sure you can repay the loan before applying.
You may want to speed the process to achieve your business goals. Yet, taking loans you can’t afford can be detrimental for your company.
Is Taking Out a Loan for Your Business the Right Call?
Taking out a loan can help you secure the funding you need to grow your business. However, it’s important to take a look at your business financials before taking the plunge. If you are uncertain about applying for your loan, you should consult a financial expert.
Sit down with your accountant or bookkeeper to put everything in perspective. An expert can go over the pros and cons of taking a business loan at this moment. If it isn’t the right time to seek financing, you can make a long term plan to get ready to apply for a business loan.
Did you find this article insightful? Keep checking out the rest of our site for more helpful tips and articles.