Business Advice, Finance, Get Funded, Lending, Start Up Loans

How to Get a Business Loan

Business Advice | 22 November 2022 | 2 years ago

repaying a directors loan

Having a brilliant business idea, determination, and grit are essential traits of a successful entrepreneur. However, it isn’t enough to start or run a business.

You’ll need to borrow money for your business at some stage and more than once. If you do a little homework, borrowing money for your business can be easy.

Decide How Much You Want?

Borrowing needs for your business will vary at different stages. For instance, if you’re looking to fund startup costs, you’ll likely need a huge business loan.

Therefore, the first step in arranging money for your business is to determine how much you need. Calculate the borrowing needs by deciding where the money will go.

Most businesses require money for operational expenses, expansion, and refinancing existing loans.

Compare Different Loan Types

Once you know how much you need and where it will go, it’s time to compare different loan types.

For example, if you want to borrow money for working capital needs, a business line of credit is a suitable option for you. If you want to fund a one-time equipment purchase, a term loan or a lease will be a better option.

Prepare a Formal Business Plan

You already have a business plan with you. Creating a formal business plan and presenting it to some potential lenders will boost your loan approval chances.

If you’re applying for an equity financing option through private lenders, a business plan will be a prerequisite for most lenders.

Analyse Your Qualification Chances

You cannot control the time you have been in business and your credit history. However, improving your credit score and other financial metrics can boost your borrowing chances significantly.

Check your business and personal credit scores. Then, evaluate your debt-to-income ratio, cash flow, collateral, and annual revenue. Analysing these factors will help you understand the borrowing process and chances of success.

Compare Different Financing Options

Once you understand borrowing requirements, you’ll be able to analyse which type of business loan is more suitable for you.

Unlike the common notion that most businesses apply for commercial loans and business cards, there are many other options as well.

Choose the right type of financing for your business:

  • Commercial bank loans
  • A business line of credit
  • SBA loans
  • Microloans
  • Merchant cash advances
  • Angel Investors and Venture Capitalists
  • Crowdfunding
  • Government grants

Consider Repayment Terms

When you apply for a loan or equity financing, your payment terms will depend on many factors.

You cannot control certain factors like your business credit score, debt-to-income ratio, cash flow, and other factors that lenders evaluate. However, you should carefully consider some controllable factors.

Choose your borrowing amount, loan term, and type of financing to calculate how much you’ll need to repay. It will include the total interest costs as well as monthly instalments.

If you choose equity financing, you may have to forego ownership stakes at this stage as well.

Evaluate Your Collateral Options

Depending on which type of loan you applied for, lenders will ask for collateral in some cases as well. If you are applying for a secured loan, you’ll need an asset to pledge with the lender.

Equity financing and private lending options may not require collateral. However, arranging a personal guarantee or assets can improve your loan approval chances significantly anyway.

Apply for a Loan

Once you are ready, it’s time to gather documents and apply for a loan.

You can check prequalification to avoid any hard credit inquiries. Then, apply for a loan or equity financing with a suitable lender by analysing the different factors mentioned above.

Then, fill out the application form and complete the formalities. Your potential lender will evaluate your financing application and decide on when and how much you can borrow with current credentials.

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