Every business idea needs finance for a variety of reasons. A business with a good reputation or one that’s a start-up needs funds to perform better and grow. Although there are many ways a business can get finance the most common option, especially for start-ups is to select a business loan. Today business loan consulting is a great method that helps in giving the most needed nudge to the business to boost its performance.
Most commonly businesses require funds to improve marketing techniques, build stronger brands, boost operations, expand the geographical footprint, everyday expenditures, staff welfare, and purchases or inventory. The financial requirement of every business may be unique however this article is a simple walkthrough of the process of securing a business loan.
Understand the need:
Every business has different yet specific needs, the business owners must understand why they are looking for a loan and what purpose would the loan fulfill. Some of the scenarios to choose a loan are:
- Equipment loan: For machinery or equipment for business when the business needs a small amount of money to purchase or upgrade the equipment.
- Microfinance: Business establishment through microfinance is a common way yet other techniques like, business credit cards or startup loans are also helpful when a business is starting.
- Working capital loans: The recurring expenses like rent, bills, training, etc need temporary fixes which are done through working capital loans.
- Line of credit: A simple solution for unexpected expenses of businesses is a line of credit. It helps to withdraw funds as per need which in turn reduces the interest.
A thorough check of eligibility is a must
The lending agency reviews loan applications keenly. Therefore all businesses must ensure they fulfill the prerequisites of the lenders like;
- Credit score: The lenders focus on the credit scores of the loan applicants. Just like personal credit scores, even businesses need to maintain a good credit score. A good credit score implies that the business is responsible and repays properly. The lenders usually check both the personal and business credit scores of the applicant. The critical factor is that the activities of the account must be duly reported to the business credit bureau.
- Collateral or any other personal guarantee: To be on the safe side the lenders usually ask for collaterals which means anything that offers substantial value. For example inventory or machinery that the lenders can seize in the event of non-payment of a loan. Additionally, some lenders look for guarantees like personal assets and properties that have high value to secure the loan.
- The business tenure: The date of registration of the business or the tenure of the business operations plays a key role in loan applications. The traditional banking systems look for a minimum of 2 years of business operations whereas the online lenders accept a minimum of 1 year of operation. But some online lending institutions help businesses that have been in existence for a minimum of six months.
- The revenue attracts lenders: Business revenue is an attractive factor when applying for loans. The lenders look for profitable businesses and the annual sales and profits add value to the application. The greater the numbers the more chances businesses have to get loans.
The common lending alternatives
- Online Lending options: The loan products through online lenders are extremely diverse. Small business owners have the facility to choose from term loans, lines of credit, merchant cash advances, and microloans. Since the approval rate of the loan is higher than the traditional banks the requirements are comparatively less stringent. Therefore businesses with less credit scores also can get a loan approved through online lenders. Moreover, the funds disbursal can happen on the same day.
- Traditional Banks: The applicants enjoy the same type of business loans through traditional banks like online lending at a much lesser interest rate. However, the requirements are stringent so only qualified applicants get loans. The businesses that have time to wait for funds can opt for traditional banks as the processing time may take up to weeks or months.
Perfect your Documentation
The lenders are likely to review all the documents related to the business and finance like tax returns, registration documents, bank statements, annual reports, business plans, etc. The business must check the documents required with the lenders beforehand.