There are several factors for an owner to consider prior to applying for a business loan. Here are some tips for companies seeking funding to research and act upon. Business funding services research may seem like a difficult and complex process, however, in reality it’s quite feasible when you are armed with the right information. Use the practical advice explained below to guide your research and arm yourself with an advantage for receiving quick and speedy approval of your startup business funding, to obtain funding in order to increase your existing enterprise’s competitive performance, or to obtain business funding with bad credit.
First, educate yourself about what the lender’s approval requirements are in order to approve your business loan. Start by investigating a potential business funding website. The Internet should also be utilized to seek out business funding services that offer business loans such as those from the Small Business Administration.
The lender’s first criteria as they review your loan application will be your ability to repay the loan. A key factor in their decision will be how long you have been in business and your profit and loss history as shown in your financial statement and business plan. If your history is lacking, but your business has an excellent marketing plan for expanding into a potential new and innovative market, the lender may be willing to discount or ignore the bad history. A startup business will need to present an excellent business plan and a complete and well-thought marketing strategy regarding how the business will generate profits in order to repay the business loan.
A lender will next score your individual credit history by looking at the three major credit reporting services scoring of your personal loan history. The lender then determines if you are a good credit risk. You should be proactive prior to applying for a loan to become familiar with these three credit scores, correct all inaccurate information and errors, and take action to make good on past due accounts.
Determining the extent of equity in your business will be considered by the lender prior to issuing you a business loan. A thumbnail scale used by most lenders is to be certain that at least 25% of the business’ assets originate from your personal assets.
Also, the lender will evaluate the quality and background of your business experience. If you do not have the business experience related to starting the business you desire – or no track record in the business expansion you are considering – you may want to partner with someone that has established experience to prove to the lender your organization access to the necessary resources. Remember, business experience and knowledge equates into profits from the business funding service’s point of view.
Collateral may be required in order to secure your business loan repayment. This collateral is usually personal property such as vehicles, equipment, machinery, or real estate that can be liquidated in the event that there is a business loan default. Of course, you will be responsible for loan origination fees as well as payment of a fixed or variable interest rate.
In deciding the type of loan to obtain, first, determine what your needs are for the business loan. There are a variety of financing packages such as small business loans, lines of credit, specialized loan programs or business grants available through the Small Business Administration.
Careful planning of how you will use the funding will also help determine what type of loan you will seek: emergency funds needed to keep your business operating during an unforeseen crisis or economic slump; long term funds required to invest in operating equipment or human resources for expansion; an influx of cash in order to help your business run more efficiently and productively; funds to increase inventory, working capital, or a real property acquisition to expand your operations. Some umbrella reasons for obtaining a small business loan would be to assist you in growing your business ideas and innovations, to increase your business profile through marketing, or to obtain a larger space for your operations.
Decide if it is in your business’ best interest to obtain a short-term or a long-term loan. In order to finance the purchase, improvement, or expansion of fixed assets – equipment, vehicles, and real property, a long term-loan is contemplated by business funding services. Business funding services extend short-term loans to finance assets and liabilities like accounts receivable, inventory, and accounts payable.
Business funding services offer short term loans to purchase inventory is usually a line of credit or short-term commercial loan. The inventory that is purchased with the loaned funds becomes the collateral securing the repayment of the loan.
Like those of inventory financing or lines of credit, business funding services can be are used to increase working capital for startup and growth in performance. This type of business funding service can be used to meet payroll and recurring payment obligations as well as to supplement inventory to satisfy foreseeable increases in consumer demand.
If your small business is looking to purchase real property, business funding services may be used to finance the acquisition. Should your small business need a loan to accommodate its growth while still generating profits, a business funding service may be very willing to approve a long-term commercial real estate loan. Business funding services generally want to see their local economy grow and provide jobs within their community.
Acquiring knowledge is the primary factor to quickly and successfully obtaining a lender’s approval of your small business loan. Your knowledge about business funding services will help you gain pre-approval or simplify the approval process.