Small Business Loan: What to Look For
What To Look For When Getting A Business Loan For Your Small Business?
One of the most important decisions that you need to make is getting a small business loan. Although it might seem straightforward, there is a lot that you need to think through to make the right decision. When it comes to seeking a small business loan, you can either opt for a traditional or alternative lender.
There is no denying that seeking a small business loan might be essential at times such as when you need to employ new people, expand your marketing efforts, expand into new territory, find new development, and grow. To help point you in the right direction, we have created the ultimate post. Here are some of the tips that you should consider when contemplating about new business loans.
1. Learn More about the Different Types of Loans for Small Businesses
The first thing that you need to do when on the lookout for a business loan is to learn more about the different types of loans that are available. As there are different types of small business loans that are available, it is important that you gain a better understanding of them.
Find out more about the specific terms, the length of the loan, and the requirements of the loan. It will allow you to pick out the right option. You have to dedicate some time to the learning process. It is the only way that you can avoid making a costly mistake.
2. Research the Lenders
A great thing about small business loans for startups is that there are more lenders willing to offer credit than you think. This is why it is crucial that you conduct some research. A basic online search will make you realize just how many options you have. You are likely to come across the following types of lenders.
► Direct Online Lenders: Today, there are plenty of online lenders that provide small business loans for startups. For instance, well-known names like PayPal offer cash advances, short-term loans, and even working capital loans.
► Large Commercial Banks: Another option that you have when on the lookout for loans for small businesses is large commercial banks. You can also seek a traditional lender to get funding. Some notable options include Citibank, JP Morgan, and Wells Fargo. However, you must keep in mind that their loan approval process will be much slower and you will be asked more questions.
► Local Community Banks: You can even reach out to a local community bank to obtain a small business loan. The fact is that it is quite common for these banks to support new entrepreneurs.
► Bank Lenders Who Are Backed By SBA Guarantees: As there are some bank lenders who are backed by SBA guarantees, you can get a loan that has better terms from them.
► Peer-to-Peer Lending Websites: In addition to the above, there are also websites that serve small borrowers by acting as the middleman. You will be delighted to know that these lenders tend to approve loan applications rather quickly.
3. Anticipate How Lenders Would View Your Profile
The next thing that you need to consider when looking for a small business loan is to focus on what lenders would check when viewing your profiles. Your profile will influence their final judgment call. Generally, lenders look at the following to decide whether to accept your loan application or not.
► Credit Report/Credit Score: Having a strong credit score is normally a requirement when on the lookout for loans for small businesses. The lender would focus on whether you have a history of making payments on time. Hence, you will need to review your credit score.
► Cash Flow and Outstanding Loans: In order to determine whether to offer a loan to you or not, the lender would also need to check your cash flow and outstanding loans. It will allow them to determine whether you would be able to pay your existing obligations and the new loan as well or not.
► Time Running the Business: Another thing that lenders also check is how long you have been managing the company. The more years you have the better.
► Assets Owned by the Company: In addition to the above, lenders also have to check your assets to find out whether you have enough assets to cover a loan default.
► Investors of the Company: Lenders have to consider whether you have any prominent angel investors, strategic investors, or professional venture capitals behind your back or not.
► Financial Statements: You would also need to provide your financial statements to the lenders so that they can evaluate whether you qualify for a loan or not.
4. Determine Your Budget
To choose the right business loan for your small business, you also have to determine your budget. You need to know what you can afford before you make any decision. Besides, it will help save you the trouble as you would be able to choose the right option. The fact is that the lender might qualify you even if they believe that you might later have trouble making payments. This is why you have to create a budget and let it guide you. You should also keep in mind that you might incur unexpected expenses along the way. Hence, you also need to account for them.
Taking out a small business loan without creating a budget first is a bad financial move that you need to avoid at all costs. Although the lender would approve you based on gross income and outstanding loans, they are unlikely to consider other monthly bills which are just as important. Therefore, you need to factor in all your costs to ensure that you are able to afford the loan.
5. Compare Terms and Rates of Different Lenders
The worst mistake that you can make is agreeing to the first lender that you encounter. It is crucial that you compare the terms and rates of multiple lenders in order to make a well-informed decision. Shop around to make sure that you get the best deal when it comes to terms, fees, and rates. You must look for a lender that is transparent and open to providing all the information that you are looking for.
When you fail to compare the different options, you end up selecting a lender that charges you more money than you should be paying. Therefore, a bit of homework goes a long way. You have to go through the terms and rates of each lender before making up your mind.
6. Review the Fine Print
Although the small business loan documents might seem daunting to review, you have to go through them to stay on the safe side. By reviewing the fine print, you would be able to correct errors and avoid surprises later down the road. You should check the explainer provided by the lender to uncover more information about the loan terms and what you should expect.
In fact, you must pay attention to every minute detail including the loan processing fee and monthly payments. Even though your lender might provide a credit to lower how much money you have to pay, you need to calculate the overall amount you would owe. Some lenders even charge administrative costs. Hence, you must go through every bit of detail. It is a good idea to consult with an attorney before signing any agreement. Feel free to ask questions about the fees as you do not want to make mistakes.
7. Find Out More about the Guarantee or Security You Must Provide
The lender might also ask you to provide a guarantee or security. It is due to this reason that you should ask each lender about what they expect from you and how the terms would be affected if you fail to submit what they are looking for. Your goal should be to look for a lender that is willing to provide a loan on favorable terms. It is always better to choose a lender that does not require a personal guarantee as it would only put your personal assets on the line.
8. Go through the Proposed Small Business Loan
Lastly, you need to evaluate the proposed small business loan before you sign any document. Analyze the terms proposed by the lender to ensure that they are in your best interests. You will have to check the dates for payment and the consequences of late payment to stay on avoid unnecessary costs.
Obtain a Small Business Loan from Clean Sweep Financial
Now that you know what to look for when evaluating which small business loan to get, you can proceed by reaching out to us to learn more about why we are the best choice for seeking financial assistance. As we approve business loans worth anywhere from $50,000 to $500,000, you can count on us as long as you have a credit score of 680 along with 2 years of tax returns. We ensure one-page application and same-day approval.