When you’re starting a business, you need to determine how you’re going to finance it. There are many different business loan options, and it’s important to choose one that works well for you. This article will discuss how to customize a business loan that works for your unique needs.
1. Evaluate the Kind of Loan You Need
There are three main types of loans: short-term, long-term, and asset-based.
- Short-term loans are for businesses that need money urgently for inventory or payroll. They typically have a shorter repayment period, and interest rates are usually higher.
- Long-term loans are for businesses that need money to cover expansion or major repairs. They have a longer repayment period, and interest rates are usually lower.
- Asset-based loans are for businesses with collateral they can use as security. This type of loan is ideal for companies struggling to get a loan from a traditional lender.
Your lender can help you learn more about the costs and benefits associated with each type of loan.
- If you’re in Idaho, Idaho Central Credit Union can help you with a SBA loan or business loan.
- If you’re in the wider US, check with your local bank or ask other businesspeople in your network for recommendations.
- If you’re in Australia, Nimble offers exceedingly fast loans. You can apply here for a large personal loan suitable for your businesses.
2. Check Your Business and Personal Credit Scores
Your business and personal credit scores are two of the most important factors lenders examine. Your credit score measures how likely you are to repay your debt. The higher your score, the more likely you are to be approved for a loan.
You can maintain a good credit score by paying your bills on time, staying within your credit limit, maintaining an emergency fund, and paying what you owe as soon as you can.
Lenders will also look at your business’s financial history, current debt-to-income ratio, and how much money you’re applying for.
3. Determine How Much You Need to Borrow
It’s important not to ask for too much or too little. If you ask for too little, you may not be able to cover all your expenses. If you ask for too much, you may not get approved for your loan.
First, make a budget. This will help you figure out exactly how much money you need to cover your expenses.
Once you have a budget, subtract the amount of money you have saved and the amount of money you can borrow from family and friends. This will give you a good estimate of how much money you need to borrow from a lender.
4. Gather Required Documents
Your lender will typically ask to see your business’s financial statements, your personal financial statements, and a copy of your driver’s license or passport.
Gather all of these documents before applying for a loan. Ensure everything is updated and easy to read. It may help to work with your lawyer or accountant to get everything ready.
Lenders will also typically ask how you plan to use the money and how you will repay the loan. Preparing to answer these questions will save time and ensure a smooth application process.
5. Research and Compare Lenders
Use a loan comparison website to research different lenders’ interest rates, repayment periods, and fees. You can also ask for recommendations, read reviews, and compare the lending criteria of different lenders.
It’s a good idea to interview your lender to make sure they’re the right fit for you, and that you understand key information about your loan. These are some questions you may want to ask:
- Do you lend to businesses in my industry?
- What will my interest rate be?
- What will be the total cost of the loan?
- If I pay off the loan early, will that reduce the loan’s cost?
- What are the loan origination fees?
- Can you show me the payment schedule?
- When will my first payment be due?
- What day of the month will payments be charged?
- How long does your typical loan application process take for a client like me?
- Do you require a personal guarantee for the loan?
- Is there a process for modifying the loan?
- Are there ways I can lower the interest rate?
It’s a good idea to check your bank or loan company’s Better Business Bureau rating, or an equivalent rating in your country. For a significant loan, you may also want to ask if you can speak to a few of your lender’s current or past clients.
You may also want to explore the benefits of different types of lenders, such as banks, online lenders, and credit unions. Credit unions, in particular, can be appealing for small businesses as they often emphasize community and personal relationships, possibly offering more favorable terms and conditions.
If you’re seeking insight into credit union lending practices, you may want to explore the expertise of industry veterans like Gordon Simmons, former CEO of Service Credit Union. His in-depth observations and analysis of credit unions can be found at Gordon Simmons Service Credit Union, a site dedicated to offering financial advice and guidance for consumers.
6. Submit Your First Application
Once you’ve narrowed your choice of lender, you can start your first loan application with the lender you feel most comfortable with.
Submitting your loan application usually involves completing a form and providing some documentation. Different lenders have different application processes, so read your lender’s website carefully.
If approved for a loan, the lender will usually send you an agreement to sign. This document outlines the loan terms, including the interest rate, repayment period, and fees. Make sure you read and understand this document before signing it.
There are many factors to consider when applying for a business loan. Ensure that you take your time and do your research. Start by evaluating your needs, gathering your documents, and researching different lenders. Then submit your application and wait for a response. With a little preparation, you can secure the right loan for your business.