The majority of business owners do not fund their entire operation by themselves. Turning to financing your company through a lender is an increasingly popular way to both start and sustain a business. You need access to capital in order to meet basic costs associated with running your business: such as purchasing inventory, maintaining payroll, investing in technology, and marketing your products. Instead of using up all of your cash flow, you can access a business loan to help meet the day-to-day costs of operating your business. Most businesses use loans during initial set-up and growth periods. But you should always be sure that your business plan allows you to pay back the loan with interest. Undertaking debt that you cannot service can be extremely risky and has the potential to damage your business’s reputation in the future. It’s important to be fully aware of the costs associated with your loan.
Why Get a Small Business Loan?
There are many different reasons to get a small business loan. Business owners typically use these loans to purchase inventory, fill gaps in cash flow, finance necessities like equipment and property leases. A business owner looking for a small business loan should have a specific idea as to why they need the loan before they apply for it. Additionally, they should be very aware as to the potential profit that will come from the use of the loan. Knowing and understanding these metrics will make it easier for the funds to be used appropriately and for the business to obtain a great return on investment.
What Use Does a Business Loan Have?
Once you receive a business loan from a lender it can be used for a number of different things. How you use your capital is completely up to your own discretion. We have listed a number of ways current clients use business loans to their advantage:
- Expand Office or Retail Space: If you need additional space to help grow your business there is no better way to finance it than through a low-interest loan. This can help you bring in additional revenue you may be missing out on.
- Opportunity: Opportunities often arise in business but you may not have the cash flow to take advantage of it. Business owners often use loans to help them take advantage of an opportunity they know has serious potential. Don’t miss out because you lack working capital.
- Investing in Technology/Equipment: Many businesses are inefficient because they don’t invest in new technology and equipment. Use a business loan to update your current technology and take your productivity to the next level.
- Undertake Additional Advertising: Try and enhance your brand recognition through different forms of advertising. Finance can help you with the upfront capital you need to become a household name.
- Hire Additional Staff: Many companies need to hire additional staff for a range of different reasons including an increase in seasonal demand. Make sure you have enough staff on hand to deliver service to your customer base.
What lenders look for in an application
When applying for a small business loan, it helps to understand what lenders look out for in a loan application. As a small business owner, it can be challenging to obtain funding in the traditional ways especially if your credit score is not in the high 700s or at the 800 mark. Whether a company has just been founded or is looking to grow and expand, the process of applying for funding can be a truly rigorous one. When approaching a lender, it is essential to understand what a lender’s requirements will be so that you can be aware of whether or not your business meets their criteria.
Some of the Basic Requirements Include:
Sufficient Assets – Many traditional loans require that the business owner have significant assets in place including personal collateral and financial reserves. This demonstrates that one’s business has sufficient capital on hand to repay the loan as well as to get through business fluctuations.
Demonstrate Sufficient Cash Flow – Another stipulation that loan companies will require is that the business demonstrates a solid amount of cash flow. This cash flow amount should be sufficient enough to repay the loan according to the outlined and specified loan terms.
Consistent profitability – If a business can demonstrate consistent profitability, then this is enough to show that they are capable of repaying the loan as needed.
It can be overwhelming for a new or start up business to try and meet all of these requirements especially if they are in their initial phases of inception. Thankfully there are many different lenders who may be willing to provide flexible payment terms that work with individual business needs. When considering which lenders to approach, it helps to consider alternative types of funding such as business lines of credit.
What is a business line of credit?
A business line of credit can be compared to a credit card because it is a flexible solution that provides access to cash on a revolving basis. Funds can be borrowed at any time as a part of the credit line and can be renewed once the original amount has been paid for. No payments are required until the business line of credit is actually used. Additionally, you can borrow on the line of credit again after it has been repaid.
Why Choose a Business Line of Credit?
Many business owners decide to use a business line of credit because it offers them immediate access to funds year-round. The interest rates on business line of credit loans are typically lower than that of other term loans. However, in the event that there is a missed payment, the interest rate would increase dramatically. Additionally, a business line of credit has lower closing costs and much more flexible approval terms making it much more likely for a business to get approved for a business line of credit instead of a traditional loan.
Is a traditional loan or business line of credit best?
Many people who are researching the loan options available for their businesses will come across different options such as term loans and business lines of credit. It can be confusing to decide on which option is the best for your financing needs without having a good understanding of the facts.
When to use term business loans
In the majority of cases, term business loans work best for large upfront business purchases. If you are just starting up your business and you need funding for major purchases such as computers, software, hardware, machinery, and other equipment then a term loan may be a great option.
When to use a business line of credit
A business line of credit is a great option for businesses that have frequent short term cash needs such as purchasing inventory or making invoice or payroll payments. The funds can be used and then repaid just like a credit card. Other instances where a business line of credit can prove helpful is with a gap in sales or another seasonal downturn in business.
How to prepare for the business loan application
A business line of credit has easier, less stringent credit requirements than any other type of business loan. For this reason, many businesses are turning to this type of loan in order to obtain the capital they need. When it comes to getting funding in the traditional way, it helps for a business owner to become cognizant in the ways that they can prepare for their loan application. Gathering all of the required documents, assembling the proofs of profitability and cash flow, and other requirements will make it easier to submit all of the necessary information for your business loan application. This ensures that you will be well prepared for the best chance of a successful outcome.
Step 1. Organize your finances
It is easier to get started applying for the business loan you need when you have everything completely organized. The process of organizing can help you get prepared so that your approval odds aren’t stunted by missing information on your application. Every lender’s requirements are different but some will require copies of balance sheets, payroll expenses, invoices, and other similar documents.
Step 2. Amass a list of different lenders
Gathering a list of different lenders helps you pinpoint the lenders that are most likely to supply you with the loan you need. An alternative to making a list of lenders is to apply to several lenders at once through an online portal such as Business Line of Credit Hub.
Step 3. Check your credit score
If you are applying for traditional funding, then your credit score will have a major impact on your chances for approval. It helps to check your credit score ahead of time so that you can know what your approval odds may be for your loan application.
By taking these basic steps, you can be well prepared for your business loan, ensuring that you have everything on hand. In the event that one or more items are missing, your lender may delay your loan request until all of the needed documents are turned in on time.
Is a Business Loan Right For Your Company?
You may be wondering whether or not a business loan is the right choice for your company. The truth is that there is no way to get all of the capital your business needs up front unless you have amassed an extensive amount of personal savings. In addition, even with the personal savings, it is still a good idea to get funding for your startup so that all of the costs are not coming out of pocket at the start of your business funding.
You can generally determine whether or not your business can benefit from having a business loan by considering whether your enterprise relies heavily on merchandise to fulfill sales and turn a profit. With even the slightest dip in inventory, your overall sales and productivity could plummet. This is why it is critical to have some type of cash on hand or business line of credit which would enable your business to replenish inventory in a timely manner.
Contrarily, if you have a service based business with minimal start-up costs such as web design service, you may benefit from taking out a small personal loan instead of obtaining a large term loan or extensive business line of credit. This will guarantee that you don’t apply for and receive a loan you don’t really need which you would then have to pay back in full.
How Business Line of Credit Hub can Help
About Business Line of Credit Hub
Business Line of Credit Hub is dedicated to providing a single source solution for business owners looking to grow and expand their enterprises by gaining access to capital. If you are considering taking out a business loan but you are hesitant because you don’t think you can qualify, we can help. Our business lenders provide less stringent terms and more flexible loan options including bad credit score loans and business lines of credit. By exploring the articles on our website, you can learn more about how to make business loans work for your financial goals. At Business Line of Credit Hub, we operate with honesty and integrity ensuring the utmost transparency on every transaction. You can have peace of mind knowing that your personal information is always fully secured and protected on our website.
What’s the Process?
We’re proud to have helped countless businesses thrive and expand their operations. We provide low-cost financing solutions for a range of different clients. Many traditional lenders will want extensive financial information during your application process. We only require that you give us basic revenue data through our online application portal. Because our system is entirely automated, you will be able to receive a lending division in a fraction of the time that banks or financial institutions may take. Don’t wait weeks, or even months, to get your capital. Apply through our online portal today and get the money you need to run your business successfully!
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