You can’t do anything without money. It is a vital part of any business. Unfortunately, money doesn’t grow on trees, so how to get funding to either start your business or further it?
You get a business loan.
If you know where to look and how to access funding, you can use the lender’s money to achieve your goals.
Although there are a variety of Business Loans out there in the market, not all of them suit your situation. To increase the chances of success, you need to identify what you need and what are your intentions for the loan.
What is a Business Loan?
A Business Loan helps you to make your next purchase, fund growth, or manage cash flow for your business. Just like any other loans, a Business Loan involves the creation of a debt which will be repaid with added interest.
In simple terms, a business loan:
- Is the money you borrow from a lender to help you with your business
- Comes with either a fixed or variable interest rate
- Can be secured or unsecured
Why you might need a business loan
There are a couple of things that may be the reason for you to take a business loan. Here are some examples:
- You need funds to acquire assets for your business
- You can use it to elevate cash flow in your business
- To acquire other businesses
- Purchase real assets in your business
How to get your loan application approved
A lender will look at different multiple factors to determine whether they should approve or decline an application. These are the same factors that play an important rule in determining the loan’s terms and rates.
Here are 6 essential factors lenders use to evaluate your business credit and decided whether to lend you money or not.
Personal Credit Score
It’s common for a lender to review your personal credit when you apply for a loan. But as a business owner, your business credit is inextricably linked to your personal credit. So, it goes without saying that they also want into account your personal financial health. This information usually includes your credit in use, credit history, payment history, and amounts owed.
Personal Debt Coverage
Lenders will be keen on your personal debt coverage. Lenders will likely see you as a risk and approve your loan application if you have a healthy state of affairs.
Business Debt Coverage
The lenders will try to assess your business’ capabilities to handle its debt obligation. They do this by evaluating your cash flow and debt payments.
Personal Debt Utilization
Your lender will divide your outstanding debt by the cumulative amount of your available revolving credit.
Business Debt Utilization
Having debt isn’t a big deal. What matters is whether your amount of debt is appropriate to the size of your business and your industry. The lenders will assess your business debt utilization by comparing your outstanding business debt to your assets and revenue.
Business Revenue Trends
Lenders will likely say yes to work with you if your business is trending in the right direction. If yours fall below the average for your industry, create some changes in your business in your pursuit of financing.
Most Popular Types of Business Loans
Business Line Credit
If your priority is flexibility, business line of credit might be for you. It is revolving so, rather than receiving the borrowed amount in a lump sum, you can access the money as many times required.
It can be used to purchase equipment, add inventory, hiring staff, expand to a new location, pay invoices or add a new vehicle to your business. It’s always available when you need it.
You’ll only pay interest on the exact amount of money you use.
Business Term Loan
A business term loan can help you acquire working capital to expand your business operations, purchase equipment, hire additional staff or whatever your business needs.
This type of business finance has been a top-seller among entrepreneurs for decades. They are known for their reliability.
Merchant Cash Advance
As the name suggests, when you take out a merchant cash advance you borrow against your future earnings to secure the funds you need.
Business Credit Card
Out of small business financing out there, the business credit card is the most user-friendly. If you’ve had a personal credit card, you’ll know how to use it because it basically works like one.
This option is for you if you don’t feel ready to pursue a business loan or have been repeatedly declined by the lenders in the past. You can use it for anything related to your business operations. Whether you need to buy a new dump truck, add inventory, expand your office, take your client to a lunch meeting, or hold a company event, this financing product can help.
If you need equipment to run your business, this loan is for you. Equipment financing, as the name tells us, helps business owners finance their equipment purchase.
Are you looking for a way to get out of the lease and begin the next stage of property ownership? A commercial mortgage can help you.
You can use a commercial mortgage for any property your business needs, whether that’s retail space, an office, a warehouse, or a restaurant.
Accounts Receivable Financing
Most businesses come to the point where they deal with unpaid invoices. This is part of the business, but when those customers never pay you, it can be a business killer. Accounts receivable financing is custom-made finance for times you need money but have money held up by unpaid invoices. You just need to sell your purchase orders or receive and you’ll receive the money you need.
You have to start somewhere. But how do you get the funding to fuel your business?
Some types of small business loans require a substantial business history to qualify. If you’re trying to start a business, you lack the required tenure and revenue.
This is the stage where a startup loan can help you. This type of financing helps new businesses by providing the funds they need.
Business Acquisition Loan
This type of loan is designed for a specific purpose: buying an existing business or franchise.
If you’re not a millionaire with a pile of money sitting around for a purchase, you might miss great business opportunities. With a business acquisition loan, you can grab those great opportunities and start building wealth using the lender’s money.
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