If you are an entrepreneur or someone who works in the business field, you’re probably aware that a lot of business owners’ resort to getting a business loan. Among the most common reasons why they go for debt financing include expansion, equipment purchase, and cash flow maintenance.
While there are many lenders that offer small business loans and other related products and services, it doesn’t necessarily mean that the process is always quick and easy. Banks and other lending institutions follow certain standards in evaluating potential borrowers and truth be told, not everyone gets approved for a loan.
Entrepreneurs, particularly the amateur ones, need to understand that getting small business loans may either make or break their business. While it is safe to say that the best way to ensure the growth of a company is not to take on any debt, this doesn’t always hold true. Even big companies borrow money from commercial banks and other lenders to get financial boost. As per Kate Manning, a business major, “almost any enterprise can see immediate growth as long as they use the additional capital (from loan proceeds) wisely.”
Before applying for a small business loan, here are some guide questions that entrepreneurs should ask themselves first:
- Am I qualified to get a loan?
By knowing all the loan requirements of different lenders, entrepreneurs will be able to determine early what necessary documents they can and cannot provide. Banks and other lending institutions have stricter standards for business loans, so borrowers need to be well-prepared. Remember that your credit score may be affected if you apply for a loan you won’t get. According to David Glass, a businessman and consultant, it will only make it more difficult for you to borrow in the future, just as how it is like when you get rejected for a personal credit card.
- How much money do I really need and how am I going to use it?
The loan amount you will apply for is a crucial decision to make since not getting an accurate estimate may have a bad impact on your business. For this reason, entrepreneurs should create a solid business plan detailing how much money is needed and how they will use the funds. Remember that lenders prefer potential borrowers who have clear business projections.
- How am I going to repay the loan?
While getting an approval for a business loan is not easy, loan repayments can actually be more challenging for entrepreneurs. Not paying your loan on time will only make you lose more money due to late payment fees. Aside from that, it may also have negative impact on your credit score. To avoid missed loan payments, entrepreneurs must plan out in advance how they will raise the needed amount for their monthly payments. To make sure you wont pay more than you need to, check this online tool that can help you compare business loans uk.
- Which lender and loan product is appropriate for me?
Getting the best loan terms is possible when entrepreneurs make an effort to do their research on various loan products available within their area. It’s not a good strategy to focus on only one lender since it won’t help entrepreneurs make a good comparison of the loan products and services they may avail. There are many available sources online that can serve as a guide and Bizit.com is a good place to start. This site offers extensive reviews on various types of lenders and loans available in the market.
It is a must for any entrepreneur to know and understand the requirements and terms of different lenders prior to submitting their loan application. By doing so, they will not only lessen the risks they may get into, but also increase their chances of getting a positive outcome. Remember that unless you have completely studied all your options, never make any crucial business decision.
- How can I make sure that my loan application will be approved?
While it is the responsibility of any borrower to comply with the loan requirements, the final say on whether a loan application gets approved or declined depends on the lenders. As I have previously mentioned, lenders have stricter guidelines for business loans as compared to personal loans, so entrepreneurs must make sure all their documents are available during the loan process and they must be able to explain clearly their business plan to convince the lenders they are worth the risk.
Remember that it is not wrong to get into debt financing to grow your business if it is a decision you have carefully studied. As entrepreneurs, you should always bear in mind that it is important to “plan and prepare first before you decide”.
