As a small business owner, you always have access to a financial life preserver when you need it. Maybe you’re hoping to support your company’s cash flow during the slow season, or you’re hoping to launch a new product or branch. Whatever your needs are, small business loans are widely available to help you meet your financial goals. That said, there are a few questions you should ask yourself before you sign the loan application.
Why do I need a business loan?
You have already determined that you need a small business loan. The next step is to articulate why you need it.
Knowing the purpose of the loan is the key to answering most of the other questions. Consider whether the need is short-term or long-term. If the purchase is for inventory that you plan to sell as soon as possible, a longer-term loan may not make sense for your situation.
How much money do I need?
You want to borrow only as much as you actually need. Borrowing more than you need will result in costs that may not be offset by the income produced through using the loan. Knowing the necessary amount also helps you select a lender since some lenders cater to small businesses at specific price points.
How soon do I need the funds?
If a new client’s account requires you to have additional equipment or resources, you will need the loan as soon as possible. Since time is usually of the essence when securing funds, choosing a lender that can expedite the paperwork is often in your best interest.
What loan should I get?
Lenders are either online or brick-and-mortar, and loans can vary in duration and terms. Consider what lending features you need and look for a loan and lender that best match your preferences.
Can I get an SBA loan?
Loans from the Small Business Administration are usually longer in duration and lower in interest. It is a loan with specific requirements like SBA 504 commercial renovation loan, so check to be sure you can meet them before applying.
Qualifying requires income annually of $180,000 or more, at least four years in business, a credit score of 680 or more, and paperwork, including debt schedule for the business, profit and loss statements, and tax returns.
What is my credit score as a business?
You should keep tabs on your business credit score. Those who do tend to be more likely to be approved for a small business loan, possibly because they are more attentive to their finances. If your credit score is not good, you can improve it over six months or so.
Keep up with your personal credit score, too. According to statistics, the lower your personal credit score, the less likely you will qualify for a business loan. Remember that your loan score drops faster than it increases. Long-term good financial responsibility is the best way to improve your scores.
What will the loan cost me?
The overall cost of the loan includes several factors:
- Interest rate
The APR (Annual Percentage Rate) usually includes any fees. Calculating the final cost based on the principal amount and the interest you must pay is critical before you sign off on a loan. Interest rates are important, but the length of time of the loan is also a factor. If you don’t take the time to calculate the total cost of your loan, you may be biting off more than you can chew.
Once you determine a need for a small business loan, gather the information to make an informed decision and get the loan best suited for your business.