Getting a Small Business Loan

Factors to Consider if You Need a Small Business Loan

Are you preparing to launch a start-up? Or do you need some extra money to help with the cash flow of your existing company? There are many reasons why business owners and entrepreneurs might be thinking about applying for a business loan. Before you run to the bank to open a line of credit, it is important that you talk to your accounting team to learn more about financial strategies that can be used in this situation.

Cash Flow for Business Operations

It is important to be sure that you have the cash flow to maintain daily operations for the company, which often means that you need to front the cash to pay for inventory and other expenses. But, you need to be careful to ensure that you have enough money to carry the company until the receivables come in.

If you know the numbers, then the risk is minimal to front this money. So, you should maintain close communication with your accountant to ensure that you can pay off the loan when the extra cash is available.

But, mistakes can be made and cause your company to be strapped in debt. These debt payments could make it harder to keep up with cash flow, eventually leading to the demise of the business.

Making Debt Useful to Grow Your Business

There is nothing wrong with using debt to grow your company. You just need to be sure that you are working with experienced financial professionals to ensure the long-term success of your strategy. Once these funds are secured, then you can use the money to boost inventory or focus on business development. Eventually, the risk could pay off with a big return on your investment.

There is no doubt that it takes money to earn money. Some business owners have a reserve of cash that can be used to get the company off the ground. Other times, it might be necessary to find angel investors or to get the financing that is needed from a lender.

How to Get a Small Business Loan

Don’t expect to walk into a bank and have easy access to money for a business loan. You need to do your homework and make sure that you are prepared when you meet with the lender. This meeting is essential to help you secure the funding that is needed. But, it can be a challenge for some people to get the approvals that are necessary for a loan or line of credit.

Securing a business loan is even harder if you haven’t been in business for many years or you don’t have the assets to use as collateral. The lender wants to see that there is a fallback option if you default on the loan. They are looking at the risk of lending the money to you.

Here are a few things that you can do to win over the lender and secure the loan that you need:

  • Provide the Lender What They Want: The lender will provide the money, with the caveat that it will be paid back in full with interest. The biggest worry is that you will be unable to pay back the loan. So, the lender will assess your personal financial history, to see if you have a good credit score and track record. Additionally, they will request information about the business plan and the anticipated outcomes as you work through the anticipated challenges of owning a small business. You need to be prepared with details and documents that will show why you can succeed when other businesses in the same industry have failed.
  • Provide the Paperwork: Don’t show up to your meeting empty-handed. Most lenders will be looking for specific documents, and they might even provide a list of requested information in advance. For example, you should bring business tax returns, profit and loss reports, proof of sales, your business plan, bank statements, or anything else that will help to show the financial picture of your company.
  • Choose the Right Lender: Instead of walking into a random bank down the street, do your homework to find a lender with a good reputation. If possible, it is best to find a financial institution that often works with small businesses and entrepreneurs. What types of loans does the lender typically offer? Do they have a good reputation among their customers? Choosing the right company can increase the likelihood that you can secure the money that you need.
  • Build Business Credit: If you are applying for a personal loan, then the lender will run your credit score to determine the risk of lending to you. In the same way, banks want to know more about your business credit score. They will look at assets and credit history to see if you have built a strong financial reputation for the company. Without this credit history, it can be hard to get approval for the loan. The best way that you can build your business credit is by securing smaller lines of credit through suppliers or investors. Then, you can strengthen your credit rating and buy assets that can be used to back up the loan money.

If you have questions about the process of getting a business loan, it can be helpful to talk to your small business accountant for advice and information. You accountant can help you prepare the documentation that is needed. Sometimes, they can even provide recommendations about good lenders to work with.

Choosing a Bank for a Small Business Loan

As mentioned above, choosing the right lender is a critical step to help you secure the loan that you need. By selecting a reputable lender, you can rest assured to know that you won’t get burned by the loan. Find someone who can offer fair interest rates and reasonable payback terms.

The most important factor is to make sure that you choose a bank that is friendly to small businesses. Here are a few options that you might consider:

  • Local Banks: Applying for a loan with a large corporate bank means that you might get lost in the shuffle. Instead, look for small financial companies that often work with local businesses. There is a Small Business Lending Fund that can be used by community banks to fund loans for small companies.
  • Talk to Other Small Businesses: Do you know any other small business owners in the area? Often, start-ups and entrepreneurs are well-connected with other people in the same situation. Ask your network to find out where they secured financing, and they will likely provide referrals for you to use.
  • Small Business Administration Secured Loans: Consider the option to apply for loans that are secured by the Small Business Administration (SBA) in the United States. These lenders will be listed as either preferred or certified by the SBA. The loan doesn’t come directly from the SBA. Instead, the lenders can secure financing through the SBA to provide loans for small businesses.

Comparing Your Options

Keep in mind that you don’t have to limit yourself to one financial company. Instead, it can be beneficial to apply for several loans so that you can compare your options. There are many lenders willing to provide the money that you need, and it can be to your benefit to compare the offerings so that you can find the best terms for your needs.

Be selective about the loans that you choose because you need to be sure that the financing will support the long-term results for your business. If the repayment terms are too difficult to meet, then you might consider looking for other options that are available.

Using the Money Wisely

Once the loan has been approved and you have secured the money that you need, work with your accountant to make sure that the money is used in the right way. Too often, business owners spend the loan money too quickly on things that won’t necessarily contribute to the future growth of the company. Then, they are stuck with the same revenue and higher bills that need to be paid each month.

Your accountant and other financial professionals can help you assess the anticipated Return on Investment for the money that you will be spending. Be selective to dedicate the money to business activities that will help to boost your revenue, providing the cash flow that you need to pay back the loan.

Are you looking for financial advice catered to the needs of your company? Then you need to talk to our team here at Easier Accounting. We specialize in small business accounting, and our goal is to provide the financial strategies that will help your business grow. We can cater your accounting services to match the needs of your company.

We are always happy to answer your questions and help with anything that you need. Call us to learn more about the ways that we can help your small business. We will gladly schedule an appointment to discuss the services that we offer: (888) 620-0770

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