By Eileen O’Shanassy
Owning a small business is a professional dream for many people. While starting a business can be a great way to earn a living, getting your initial business off the ground and into profitability will often require taking out a business loan or at least some kind of financial start. Before you get your first business loan, there are several tips to know to ensure you are approved and get the right loan for your business type.
Be Prepared for Application
When looking to get a business loan, the first tip to follow is to ensure you are prepared for the application process. Applying for a business loan can sometimes be a complicated process. You will need to be able to provide historical financial statements, projections, a business plan, or structure, and other information that the bank will need to assess the loan’s viability. To ensure the application process goes smoothly, you should make sure this is all ready and available before starting the application process.
Know Different Types of Loans
Business loans can come in a range of different types. Some companies use loans to buy real estate, while others use them to fund working capital, buy equipment, or finance inventory purchases. According to a bank that does business financing, some of the most popular loans include Line of Credit, Construction, and SBA for small business financing. Before choosing any type, it would be a good idea to speak with your lender to understand all loan options and pick the one that best meets your needs.
Understand the Costs
When taking out a loan from a bank for your business, you also need to understand all of the costs that go along with it. While this may seem straightforward, most business loans have complicated terms that can make the costs add up. This can include a variable interest rate, origination fees, monitoring and management fees, and audit fees. Be sure to understand all these fees so you know the true cost of the loan.
Know Your Requirements
Before signing the loan documents, you also need to understand your requirements under the loan. Business loan borrowers often are required to meet certain financial covenants and provide regular financial reports. If this does not seem possible for you, it could lead to a violation under the loan agreement.
Getting a business loan can be a great way to continue to grow a small business. While there are plenty of advantages that come with getting this kind of startup capital, there are several tips you need to know to ensure you get the right loan for your business.
Eileen O’Shanassy is a freelance writer and blogger based out of Flagstaff, AZ. She writes on a variety of topics and loves to research and write. She enjoys baking, biking, and kayaking. Check out her Twitter @eileenoshanassy.