There’s rarely been a better time to start a business than the present, given that lenders are lending money at rock-bottom interest rates, in general. Of course, the rate you get depends in part on your creditworthiness; but overall, now is the time to look into the best sources for realizing your working dream.
Your first order of business is to figure out what you’re selling, and who’s buying. After that, the ability to conduct small business loan comparisons online will expedite the process of establishing your product or service. In the following, you’ll take a look at 5 methods meant to give you the best chance possible at securing a business loan at a good rate of interest.
1. List Your Specific Reasons For the Loan
This is quite necessary; after all, when starting a business, there are many expenses that you need to keep abreast of. Is the loan more of a personal loan to help you with your everyday expenses while you work to grow your business? Or is it specifically for business growth (advertising, services, etc)? Many people obtain a loan to use as a safety cushion in case they have to quit their day job when things get hectic.
2, Understand the Types of Loans Available
First of all, in order to secure a business loan in the first place, lenders generally require you to have positive cash flow. This means your business must be profitable; otherwise, how could they expect to get their money back? It can be quite difficult, as a result, to obtain a business loan in the first year or two of business – unless you can get a net profit before then. This is why so many business owners first worked, saved up money, and then started their business using the money they saved.
3, Choosing a Lender That Specializes in Small Business Loans
There are so many options that it can sometimes be overwhelming settling on the objectively best one. Bank (of course), online lending institutions and nonprofits are well-known for having the capital to engage in lending at the prescribed interest rates. As a tip, try to think of the loan hunt as a car hunt; you’ll be using the same techniques in determining the right one for you. It all begins with gathering a short list and then comparing interest rates and loan terms based on your businesses’ current profitability.
Nonetheless, the US government has an excellent resource for small business loans, in case you need to know where to start.
4. Order Your Credit History
This is the easiest one on the list. If you’ve incorporated as a partnership or a sole proprietorship, then the credit history your business will assume is your personal one. If instead, you’ve applied for an EIN and incorporate as an LLC or something similar, then your business may have a credit history unto itself. This means you’ll need to start gathering info in order to actually build one – such as establishing lines of credit with other suppliers, etc. Here’s a tip: lenders strongly prefer people with credit scores of at least 680. Raise yours to this level before applying for a business loan for best results.
5. Start Getting Documents Together
You’ll need these in order to apply. This means, financial statements, personal bank statements, tax returns, franchise agreement if applicable, articles of incorporation and any other legal document associated with your current business.
- Pros and Cons of Financing a Business
- How to Raise Money to Finance a Franchise
- Why You Can’t Get a Bank Loan for Your Small Business
- 12 Tips for Getting Your Bank Loan Approved
- Minimize the Risk to Your Personal Credit When Starting a New Business