Steps to get the best business loans
One of the biggest worries of young businesses is getting seed capital. Startup founders often go for the option of applying for a business loan along with searching for an investor. For a startup, getting a business loan can be a healthy and advantageous alternative to getting investment. Getting a business loan can often be more convenient and less intricate as opposed to getting an investor to invest in the business. Startups don’t have to share the profit with their lenders; the only requirement is that of repaying the loan in installments with interest. There are some downsides to getting a business loan. However, they can be avoided when the right loan is taken. Calculating the right amount of loan according to business needs is one of the important steps toward getting the right business loan.
How can a business calculate the amount of loan it needs?
- Startups need to take out business loans to get financial assistance. For a business to estimate the amount of capital it needs from a bank or a lender, a loan calculator is used.
- A business loan calculator helps a business understand its financial needs, monthly payments, total interest costs of the business loan, the annual percentage rate, and will help the business determine if they can afford the loan.
- There are several business calculators available on the Internet that can be used to get important information like the right amount of loan, interest rate provided by the bank or lender, upfront fees, monthly service fees, and the length of the repayment of the loan.
What are the steps involved in getting a business loan?
- Before applying for a business loan, it is important for a business to know why it needs a loan. How a business plans on utilizing the loan amount is an important step that will help determine the correct lending option.
- A business owner must consider and know about the different types of business loans available. Only after evaluating the pros and cons of taking a loan from one entity should a business get a loan. There are many different types of loans that include small business association loans (SBA), bank loans, business lines of credit, invoice factoring, microloans, and merchant cash advance.
- The next step involved is checking the credit score. The lender will check the credit score of the business owner if there is no credit score available for the business.
- Getting all the important paperwork and documents in place is one of the most crucial steps of getting a business loan. The important documents include business and personal bank statements, state registrations and licenses, business or personal credit report, articles of incorporation, business and personal tax returns, and other legal documents.
- Decide the collaterals as the lender would require collateral for protection. Some collaterals could be vehicles, equipment, buildings, land, inventory, and accounts receivable. Those who don’t have sufficient business assets are required to use their personal assets to set up a new business.
- Once the right loan is found, the final steps involves applying for the same and closing the loan.
What are the different types of loans for businesses?
- Secured loans are best for companies that have properties to put up as collateral.
- Unsecured loans are best for those businesses that have a decent credit score.
- Line of credit is a type of business loan that is best for businesses that have ongoing working capital expenses. It is important to know about different loans that are best for different requirements of businesses.
- Kabbage, LendingTree, Lendio, BlueVine, LoanBuilder by PayPal, Wall Street Funding, Fundbox, Reliant Funding, Torro, and Leaders Funding are some of the top lenders for small business loans.
There are advantages and disadvantages in getting a business loan and in getting investment from an investor. Business financing is crucial and a business needs to consider the pros and cons of both options before choosing one of them.
- Pros of getting a business loan include sole ownership of the business, retainment of the profits, chance to build credit, relatively short-term than an investor.
- The cons include repayment, interest on repayment, collateral, and risk of losing the business and personal assets.
- Pros of getting an investment include no repayment of the money and advice of investors for the business.
- Cons of investor financing include shared profits and not having complete ownership of the business and business decisions.