Best Business Loans

Understand various loan types and lenders

Finding the right loan for your business is a daunting task. There are a plethora of business loans, each with unique aspects and requirements. Keep in mind all the factors that could affect your loan such as personal and business credit history, sufficient collateral, profitability, and cash flow. However, don’t let this discourage you. Don’t be afraid to ask questions and look around until you find the right lender and loan. Make sure to ask your lender what loans they offer and which one will help your business.The most important thing is to find a loan that will best benefit you and your company’s needs. 

Prepare to answer questions and provide proof

Lenders will want to know everything about your business. Take the time to tell them about your business, clients, and industry. You can also share how you plan to spend the loan money and where you want to be in the next 5-10 years. Additionally, be sure to bring any documents that can speak to the credibility of your business, including business and personal credit histories, business plans, proof of collateral, bank statements, tax returns, and any other legal paperwork.  

Be patient

You filled out your business loan application a few months ago and are waiting to hear back about the decision. However, the lender calls to inform you that your business loan was rejected. This news would bring anyone down and feel discouraged. In fact, this is the case for many people attempting to get a business loan. Some people never even figure out why their application was rejected. Before hanging up the phone ask what it was that influenced their decision. Sometimes it can be that your business involves to much risk or there wasn’t a clear business plan. Most of the time it is something that can be changed and fixed. Before you submit another application make sure to revisit all aspects of your business proposal to make sure they meet the requirements. 

Explore all of your options

Traditional bank loans are probably the most common when starting to apply for loans. However, just because they are the most common doesn’t mean that it is the best fit for you and your company. Finding the right business loan company takes time and patience, so be prepared to shop around. Focus on companies that are best suited to your current needs. 

Know what lenders will look for

Be aware of the following items that a lender will look for in your business loan application:

Personal credit score: Your personal credit score plays a key role in whether a lender decides to grant you a business loan. Lenders want to try to guarantee that you’ll make your monthly payments and pay back the entire loan. A personal credit score allows lenders to make a judgement call about whether they’ll approve the loan. Generally, most lenders prefer a credit score of 700+, but there are exceptions.

Amount of time in the business industry: Lenders will consider how long your company has been operating. Most lenders require that your company be in business for 1-2 years before they’ll consider you for a loan. 

Collateral: Before giving you the loan, lenders will want to know that if something goes wrong they’ll have something tangible to sell. Collateral can be a car, real estate, work equipment, cash, accounts receivable, or other assets. Lenders tend to undervalue collateral as it lessens the risk they have to take. Undervaluing the collateral requires a borrower to provide more assets to secure the loan.  

Get familiar with common business loan terms

• Accounts Payable: Can also be referred to as “current liability.” Accounts payable is the amounts owed to a certain vendor or supplier.
• Accounts Receivable: The money that is owed to your company. This is based on the services or goods provided to a customer.
• APR: Stands for the Annual Percentage Rate. The APR not only takes interest into account but any other fees to measure how much your business loan will cost you each year.
• Blanket Lien: Agreeing to a blanket lien gives a lender the right to seize you or your business’s assets (in any form) if you fail to pay off the debt.
• Collateral: Collateral is a tangible or valuable to you or your business. If you fail to make the loan payments the property that you signed as collateral will be given up to your lender.
• Consolidation: Paying off multiple debts with the funds from one loan.
• Entity Type: Every business must declare an entity type. This ensures that businesses operate within the correct laws.
• Fixed Interest Rate: The interest rate will not change during the entire lifetime of the loan.
• Insolvency: A state of not being able to repay your debts.
• Lien: Using something you own as a guarantee to repay back your loan. If your lender takes out a lien on your car and you don’t pay back your loan, the lender has the right to take your car.
• Line of Credit: Functions like a credit card. You will be given a extended line of credit where you’ll be able to spend up to that credit limit. Then you will have to pay off whatever you spent.
• Long-Term: Any debt that will be paid back in more than one year.
• Principal: Refers to the original size of your loan.
• Refinancing: Paying off your debt with a new loan. This is done to save on interest.
• SBA: Small Business Administration, a government agency to help smaller businesses with secure financing.
• Short-Term: Typically refers to debt paid off within one year. However, there are a few lenders who allow short-term repayment intervals of up to two years.
• Subprime Borrower: A borrower who has a credit rating below normal. Usually, subprime borrowers are charged a higher interest rate.
• Unsecured: A loan that doesn’t have any collateral. This type of loan can be tricky to qualify for because the lender doesn’t have any way to recover their losses if you don’t pay back the loan.
• Variable Interest Rate: Interest rate that will vary as the market changes over the entire lifetime of the loan.
• Working Capital: Current assets minus current liabilities.