A Quick Guide to a Business Loan

Business loans are the starting point for a new company or an opportunity for an existing enterprise. Understanding available options are critical to making these loans work for you. In that regard, here’s a quick guide to a business loan.

What to Consider Before Getting a Loan

Here are factors to keep in mind if you’re in the market for a loan.

What’s the Loan For

Prepare an organized business plan. The document should detail how you’d use the capital to fund your operations. It should identify unique business goals and how you’d apply the loan to your operation.

The Time to Apply for a Business Loan

You’re applying for a business loan because you need capital. But you have to be in a state that meets lender qualifications for the loan. Here are some of the more common criteria lender companies will look at.

Creditworthiness

Your credit score and history are going to lead the way. Lenders take risk levels seriously. You and/or your business will need a minimum credit score of 680. An exception based on other factors isn’t unusual, but a poor credit score will always be detrimental.

Business History

While startups will have to meet a completely different set of standards, existing businesses need at least a year or two of operation for loan consideration. If you’re a startup, your best bet is a small business loan.

Annual Revenue

Lenders will look at your stream of income to determine risk. Depending on the industry or other considerations, they expect annual revenue of between $50,000 and $250,000 for long term business loans. There are other options, such as microlenders. They offer short term loans for as low as $2,500.

Ability to Meet Payments

Lenders will use your creditworthiness to access your ability to repay a loan. They’ll comb through your financials. You do it first. Make sure your cash flow and payment history hold up. It’s the only way to show lenders you’ll be reliable and can make timely payments.

Amount of Loan

Have a specific amount of money in mind to borrow. Prepare a finetuned plan for using it as a business investment. A real amount could make or break your approval. Lenders do not give loans to anyone who appears incapable of designing a financial budget. Some lenders may ask you to adjust the request. Others may outright reject the application.

Types of Lenders

Conventional brick-and-mortar lenders are no longer the end-all for loans. You can also throw financiers and credit unions on the pile. The field of business financing has opened up, providing borrowers with an array of ways to fund a business.

Peer-to-peer Lending

Peer-to-peer is a transaction where an investor loans money directly to the borrower, usually through an online platform.

Crowdfunding

Crowdfunding is a proactive project where a business funds itself through a series of pledges or donations from multiple investors and individuals. You do this through an online resource.

Merchant Cash Advance

Lenders in this field do not consider their funding a loan. They provide a business with an upfront amount of cash. There are technically no payments. Instead, the borrower pays off the funding with a portion of future sales.

Online Lenders

From cash advances to short- and long-term loans, online resources are plentiful. They tend to be less restrictive when it comes to criteria, but they can also be more costly in terms of rates and charges.

Getting approval for a business loan requires research, patience and time. Before pursuing any option, have an understanding of your business, industry, type of financing and how you’ll pay the loan off. It’s the best way to get the capital you need.