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Being a Better Borrower: 6 Things To Know Before Applying for a Small Business Loan

Things To Know Before Applying for a Small Business Loan

Being a Better Borrower: 6 Things To Know Before Applying for a Small Business Loan

Small business owners have varying financial needs, and many turn to small business loans to meet them. Before you apply for a loan, it’s essential to know the basics of small business financing to be a better, more responsible borrower.

Business loans are viable tools for growing businesses, but they are significant commitments that come with risks. Knowing the facts makes you a more competitive applicant.

Getting the wrong one at the wrong time can cause problems for business owners who need money for new equipment or emergencies. Only enter into a loan when you are sure you need the money and can repay it. Here are six other things you should know before applying for a small business loan. 

Startups rarely get loans

Lenders rarely loan money to startups because they are too risky. These fledgling companies don’t have credit ratings that lenders trust, so entrepreneurs turn to alternatives like personal credit or friends and family.

All types of small businesses can apply and be qualified

Lenders will loan to small businesses that meet specific requirements. These loan officers like to see companies with two years of profitability. Lenders prefer to lend to applicants with several years of experience running a business because they are more likely to pay their loan balances in full.

Small businesses of all types can apply. For example, lenders give loans to small business partnerships, small manufacturing companies, services, proprietors, and self-employed people. If you are concerned about your minor business qualifying for a loan, chat with a lender near you.

What do lenders look for from small businesses?

Before approving a loan, lenders look at several aspects of your business’s finances. The lender will look at your business’s credit score and cash flow. You’ll need to show proofs of identity like your tax number, utility bills, and other legal papers to show that you control the business. 

Lenders will want to see proof of insurance for your business and financial documents like bank statements, tax returns, and commercial agreements. Before you apply, get your documents for speedier approval and underwriting.

What do loans cost?

Business loans come with several terms and conditions. Lenders always add interest to their products because that is their method of making money. However, officers also charge fees for their loan products. So, you can expect to pay for closing costs and loan origination. Some lenders even charge to pull your credit report. Shop around to get the best terms and the lowest fees.

Can you apply for loans online?

Many lenders have online applications, making them convenient for borrowers who don’t want to spend hours sitting in a banking office. Shop around for the most benefits, and consider pre-approval applications that don’t need to pull your credit report until you officially apply.

Wrap up

Before applying for a small business loan, consider the pros and cons of your financial status. Investigate your options and read the small print so that you choose the best loan for your company’s situation.

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Being a Better Borrower: 6 Things To Know Before Applying for a Small Business Loan