There isn’t any way around it. You need to have access to capital to run most businesses.
Unfortunately, that isn’t available for many companies. In fact, 29% of businesses fail because they run out of money.
If you need capital to expand your business, you need to know how to secure a business loan. Our post will help you with that process.
Follow the eight steps below to get a business loan for your company.
1. Figure Out What You Need the Money For
Before you start slinging money around, you need to know how you can make the most use of it. Before you begin applying for loans, figure out what you can spend your money on that will make the most impact.
This plan isn’t only for you. Many lenders will also want to know this. When you have a plan for the money they are giving you, it makes it less risky for them.
How you use your money may also dictate which loans are available to you. Are you getting a loan to get out of a tight spot, or do you want money to expand faster?
You may be able to get better terms if you have a sound expansion plan. But if you’re in debt and struggling, some lenders may be more reluctant to give you money.
2. Determine How Much Money You Need
After you figure out how you’re going to use your capital, you need to plan for how much you need.
If you don’t get a loan big enough for what you want to do, it could lead to problems down the line.
Take expansion, for instance. If you run out of money before you finish your expansion plans, you may be dead in the water while you look for more money.
This lack of cash can disrupt your operations and cost you money.
Try to ask for a little more than you think you’ll need. This means you will have a buffer in case things don’t go according to plan.
3. Learn About the Different Types of Loans
There are a lot of loan types out there, and not all of them work for every business case. Research each all of your solutions, so you know which loan will work best for you.
If you need funds for buying inventory, a credit line may be your best choice. You can pay it off as you purchase stock and not worry about a loan repayment period.
If you are in debt, then you may be better off with a traditional loan. This capital will allow you to consolidate your debt.
Here are several of the loan types available for you:
- Bank loan
- Line of credit
- SBA loan
- Working capital loan
4. Research Potential Lenders
You have a lot of options out there when it comes to business loans. Don’t think a bank is your only option.
One newer form of loan is microlending. These lenders sign up for a website and make small loans to multiple people. This means that instead of you getting your loan from one lender, you get funded by several individuals.
These loans are usually smaller amounts, so it may not be right for you if you need a more significant amount of capital.
Different lenders will also give you different terms. You will want to get as many offers as you can so you can know your options and pick the best one.
5. Check Your Business Credit Score
Most people know about individual credit scores. What some people don’t realize is that your business has a credit score too.
If you don’t have a good score, then it can impact your ability to get a loan. If this is the case, you will need to work on improving your score.
There may be lenders that will work with you when you have a low score, but your terms won’t be as good. If your need isn’t urgent, take some time to improve your score, so you have more options.
6. Get Your Documents in Order
When you apply for your loan, a lender will want documentation. These documents can include your financial statements, purchase histories, customer payments, and business plans. Chances are you will need several years of this information.
When you provide more data to a lender, they have better data to make their decision with. If you have a history of good cash flow, then you aren’t a risky bet.
You’re going to have a better chance of getting your loan.
7. Figure Out What Collateral You Can Offer
It would be a great world if we could all trust each other to do what we say we’re going to do. But that doesn’t always happen.
If you want someone to trust you with their money, they will need a guarantee most of the time. You will need to figure out what collateral you are willing to offer when this happens.
Your collateral can be any physical inventory, real estate, and equipment. If you don’t have enough business collateral, you may need to offer a personal guarantee.
8. Compare Your Loan Offers
Now that you’ve got all the legwork out of the way, you should have gotten offers from several loan services. The question is, which one will you go with?
It might be tempting to go for the one with the lowest interest rate, but don’t jump into the decision too fast. Make sure that the lender has terms that work for you.
If someone offers a lower interest rate, how much collateral do they need for their terms? Are you willing to comply with their needs?
Timing can also make a difference. How soon do you need the money?
You can find loans that offer faster approval, but you’re going to get worse terms most of the time. If you go through a more lengthy process, you should be able to get better terms.
How to Secure a Business Loan: Final Thoughts
Getting a loan for your business isn’t an easy process. But with the steps above, you should know how to secure a business loan.
Make sure you do your research so you can get an offer that works for your business and won’t put you in the red.
Do you want to learn more financial advice you can use for your business? Head over to our blog to read what our latest posts say.