Small business loans can be a great way to grow your business, but they’re not always easy to get. Some lenders want you to have at least one year of operating history, and others want you to provide detailed financial statements before approval. If you’re ready to make an application for a small business loan and need help understanding what’s involved, here are some key things to keep in mind:
You have collateral to put down.
You have collateral to put down. What is collateral? It’s the security you put up in a transaction if the person who owes you money doesn’t pay. So, for example, if you take out a mortgage on your house and can’t make your monthly payments, then the lender can take possession of your home and sell it for cash.
This is different from equity, which is how much money you would need to pay off your debt for something (like a house or car) to be considered “fairly priced.” For example: if an item costs $10,000 but has $5,000 worth of equity, then it would be considered fairly priced at $15,000 (the amount owed.)
You have a good credit score.
A good credit score is a sign of financial responsibility. Having a high credit score means that you’ve demonstrated an ability to manage your finances responsibly over time. That makes you more likely to be able to repay a small business loan on time, which is essential because many banks look at this when considering whether or not they’ll lend money to borrowers.
“If you plan to apply for an SBA loan, make sure to read the requirements and funding limitations before applying to make sure you qualify. SBA loans are notorious for taking a while to process, so the better prepared you are in advance, the more likely you could be to receive the loan,” says experts at Lantern by SoFi. They also add, “SBA loan interest rates vary from loan to loan, so keep reading to find out how much you might pay in interest if you take out a loan from the SBA.”
You need money to grow your business.
There are a lot of reasons you might need money. First, if you’re thinking of expanding your business or hiring more employees, buying new equipment or property—or even purchasing a franchise—a small business loan could be the perfect solution for you.
Your business has been operating for at least two years.
You’ve been in business for at least two years; it’s essential to demonstrate that you have a track record of success and can demonstrate a need for the loan. You should also be able to show that you have paid your bills on time and paid back any loans you may have taken out in the past.
You need money to cover unforeseen expenses.
You need money to cover unforeseen expenses, like an expensive piece of equipment that breaks or an unexpected increase in employee pay. These are just some of the reasons you might need cash piles during your business’s operations—and they’re simple enough.
You have a lot on your plate when you’re a small business owner. The responsibility of running an entire company can be overwhelming and exhausting—but it doesn’t have to be! With the right tools and resources, you can succeed. And an SBA loan is one of those tools that could help get your business on track.