Are you considering getting a business loan for your small business? Do you already have one? Either way, it's important to know the do's and don'ts.
Are you looking for a loan for your small business? If so, you're in luck!
Small business loan approval rates are on the rise, and more small business owners are getting the full amount of the loan they're requesting.
If you're interested in getting a business loan for your small business, there are some important do's and don'ts you'll need to keep in mind.
These guidelines will help you make the right decisions and increase your chances of getting all the money you need to get your business off the ground.
Types of Business Loans
Before diving into the specific dos and don'ts of getting a business loan, it's important to understand some of the different types of business loans and their repayment terms:
This involves receiving a lump sum of money that youÂ will repay over a predetermined period of time with interest.
These loans are guaranteed by the Small Business Administration. TheyÂ typically have lower interest rates and longer repayment terms.
BusinessÂ Line of Credit
This gives you access to money up to a specific limit. You only pay interest on the money you've withdrawn.
As the name suggests, this type of loan is meant specifically to help you purchase the equipment you need for your business. The equipment serves as collateral for the loan.
Business Credit Cards
Business credit cards are revolving lines of credit. You can draw from and repay them as often as needed. They're typically best when used for financing ongoing expenses like travel or utilities.
Do's of Getting a Business Loan
When it comes to seeking out a business loan for your small business, you must be sure to keep these guidelines in mind:
Do Know Your Credit Score
Small business owners who are aware of their business credit scores are 41 percent more likely to get approved when they apply for a business loan.
Your personal credit score makes a difference, too. It tells potential lenders a lot about your financial habits.
Do Get a Business Bank Account
One of the easiest ways to keep your finances in check is to use a separate bank account for your business. Keeping them separate actually decreases your chances of being turned down for a loan, too.
Do Consider All Your Options
There are lots of lenders out there. You can even find lots of online lenders with rates and repayment options that are in line with or better than the options offered by traditional banks and credit unions. Take your time and look at all the different choices before making a decision.
Do Keep Necessary Documents on Hand
There are a lot of documents you'll need to have on hand when you're applying for a business loan. Some specific documents you ought to keep easily accessible include:
- Tax returns
- Financial statements
- Business plan
- Articles of incorporation
Carefully review what each loanÂ requires and have that information ready to go so that you're prepared.
Do Learn from Past Mistakes
Many small business owners who are denied financing don't know why their applications get denied. These small business owners often tend to get turned down more than once, often because they don't learn from the mistakes they made the first time around.
Do Use a Business Loan Calculator
There are more costs associated with a business loan than just the amount you're seeking to borrow. From interest rates to the APR, there are other costs you need to keep in mind. Use a loan calculator so that you understand the true cost of your loan before deciding whether or not it's right for you.
Do Work with an Expert
Finally, remember that you don't have to go through the loan application all by yourself. There's nothing wrong with taking advantage of all the resources out there and working with an expert.Â
Get in touch with someone at your local SBA office. They can put you in touch with a mentor who will give you the advice you need to increase your chances of getting approved.
Don'ts of Getting a Business Loan
At the same time, there are also some things you ought to avoid if you want to increase your chances of your loan request getting approved:
Don't Limit Yourself to Your Local Bank
Many business owners make the mistake of only looking for loans from their local bank or credit union. Remember, there are lots of alternative lenders out there. Don't be afraid to seek them out.
Don't Overestimate Your Income
No matter how optimistic you are, chances are your income is not going to be as high in your first year as you predict.
Go over your budget, then decrease your income by 25-50 percent. You'll be more likely to get approved for your loan if you're realistic.
Don't Underestimate Your Expenses
At the same time, don't underestimate the expenses you'll be met with as you're getting your business off the ground. Go back over your budget and increase your expenses, just to be safe.Â
Don't be Vague
When you apply for a business loan, lenders will ask you how much money you want and what you're going to use it for.
Be specific about the amount you want and your intentions for that money. Don't beat around the bush -- lenders want to see that you've got a specific plan.
Don't Borrow from a Disreputable Lender
Finally, while there's nothing wrong with seeking out a loan from an alternative lender, it's still important to ensure that your potential lender is a reputable one. Remember, if their offer seems too good to be true, it probably is.
Do You Need Help With Your Defaulted SBA Loan?
If you have defaulted on an SBA loan, our experienced SBA attorneys offer assertive legal representation.
We can help at Protect Law Group. Contact us today to schedule a free consultation.