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Home Business Loans A Guide To First-Time Business Loans
When you’re running a small business, hard work will only get you so far—you also need access to capital. Unfortunately, insufficient cash flow is one of the biggest struggles most business owners have.
That’s why business loans are a great option for small business owners. But if you’ve never applied for a business loan before, you may find the process intimidating.
And that makes sense because many people make the process seem much harder than it actually is. Let’s look at how you can apply for and receive a first-time small business loan with as little stress as possible.
Before you can apply for a small business loan, you need to figure out what kind of loan you need. Here are some of the most popular types of small business loans:
Once you know what kind of loan you need, it’s time to start the application process. Let’s look at five steps you’ll take to apply for a first-time small business loan.
Before applying, you need to figure out what you can reasonably afford to borrow. Regardless of the type of loan you take out, you’ll have to repay the funds with interest over time.
If you borrow too much, the payments could become a financial burden for your business. This could cause cash flow issues and other problems in your business. If you’re unsure what you can afford to borrow, you may find it helpful to use a small business loan calculator.
This calculator helps you break down the monthly costs for taking out various types of loans. For instance, let’s say you took out a $50,000 business term loan with a two-year repayment term and an annual rate of 10%. In this situation, your monthly payments would be $2,307.25.
At this point, you’re ready to apply for the loan. And contrary to popular opinion, you don’t need to check your credit score first or gather all your business documents right from the get-go.
Why? Because all of that information will come out during the lending process. And the credit score your lender sees will not be the same as the one you receive through an online service.
Plus, if you spend too much time preparing, you may talk yourself out of applying for the loan altogether. Once you start the application process, your lender can work with you to get everything you need to successfully complete the loan.
After you’ve started the application process, your lender will need additional documentation. The extent of this documentation depends on the type of loan you’re applying for. For instance, an SBA loan will require far more documentation than a business credit card.
Being prepared is great, but we’re guessing you don’t want to do more work than you absolutely have to. So it’s best to wait and see what your lender needs before gathering bank statements, business plans, and other documents.
If you’re taking out a small business loan, you’ll need to decide whether you want a secured or unsecured loan. If a loan is secured, that means you put down some type of collateral on the loan.
For instance, you could use property, equipment, or other business assets to secure the loan. In comparison, unsecured loans don’t have any collateral requirements.
Putting down collateral can be risky because if you default on the loan, your lender will seize your business assets. But putting down collateral could make it easier to qualify for a higher loan amount or a lower interest rate.
And finally, before you close on the loan and receive the funding, you need to compare your options among various lenders. This is the best way to ensure you get the best rates and terms on your small business loan.
One of the easiest ways to compare your lending options is by using a service like Lendio. When you apply through Lendio, you’ll submit an online application that takes 15 minutes or less to complete.
Once you’ve completed the application, you’ll see loan options for over 75 lenders in our network. And once you’ve selected a lender and been approved for the loan, you could receive the funds in as little as 24 hours.
A small business loan can provide the cash flow you need to fund daily business activities, and it’s always better to apply for a loan before you desperately need the funds. Fortunately, applying for a loan isn’t as difficult as many people would have you believe. If you’re ready to get started, you can use Lendio to compare options for a small business loan.
Applying is free and won’t impact your credit
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For the past five years, she's dedicated more than 10,000 hours of research and writing to more than 2,000 articles about personal finance topics, including building credit, mortgages, and personal and student loans.