A business loan is an amount of money given to the owner of a small business with clearly defined terms of payments, interest and a time line for repayment.
How Business Loans Help
Business loans are useful for small business owners in many ways.
As a small business owner, you often need funds for many things. This can be money to start your business, for ongoing working capital, to buy things for the office or for purchasing office space.
Business loans come in very handy for meeting all these requirements.
Types of Business Loans
There are many types of business loans. Business loans can be either secured or unsecured. Secured loans require collateral. Unsecured business loans, on the other hand, do not require any collateral.
However, requirements for getting unsecured business loans are usually more stringent. You need a very good credit score to get this type of business loan, and there should be no black marks on your credit history.
Apply For a Business Loan
The first and foremost requirement for getting an unsecured business loan is a good credit score. However, there are other requirements as well.
When you apply for a business loan the lender will verify whether you meet these requirements before approving the loan. You will need to very clearly specify why you need the loan, the purpose. Perhaps you need it for inventory, renting a new office or paying new employees.
You will need to provide records of your financial transactions for the past three years. You may also be required to provide records of your investment in the business. Some lenders may also require your lease agreements, projected cash flow statements and balance sheets, income and expense statements and your personal financial statements.
What Do Lenders Look For?
Lenders look for the following things when deciding to approve an unsecured business loan:
- Good credit score of the owner
- Good character of the owner
- Reasonable amount of personal investment by the owner
- Ability to repay the loan
If any of these factors – particularly a good credit score – is lacking – then you may have to opt for a secured loan. You will be required to provide some sort of collateral for the loan; this collateral can be property registered under your business, or your personal property such as your home or car.
How to Secure a Business loan
The first step in securing a business loan is to talk to your lender about their requirements. There are many lenders who are willing to provide loans to small businesses. These lenders will appoint one of their employees to look into your requirements and the documents you need to submit to apply for the loan.
If you take out a business loan and make your payments on time, without defaulting, then your chances of securing a larger loan in the future will increase. So make sure that you make all the payments on time.
For many small business owners, it is necessary to apply for a business loan. It can give any small business that much-needed extra financial boost to succeed.
