The Entrepreneurs Guide to Business Loans
By: Jason Freskos
Jason Freskos is the Founder of Sequoia Mortgage Capital.
Choosing the right business loan can make a world of a difference for your business’ success. For small businesses and entrepreneurs, a business loan can be used for operating expenses, paying debt, and for other purposes.
If you’ve never applied for business funding before, you’ve come to the right place. Our guide will provide all of the information you need to know about applying for and obtaining a business loan.
Choose the Right Type of Loan
There are various types of business loans to choose from. Loans can be secured or unsecured. Secure loans require that the borrower offers collateral in the event of defaulting on the loan. An unsecured business loan doesn’t require collateral.
Some of the most common business loans to consider include:
– Small Business Administration (SBA) loan
– Business term loan
– Business line of credit
– Business credit card
– Merchant cash advance
– Equipment loan
Before applying for a business loan, figure out which option best fits your needs.
How to Apply for a Business Loan
Many lenders offer business loans, including online lenders, credit unions, traditional banks, and SBA-backed lenders. Once you choose a loan type, the next step is to gather all the documentation that your lender may ask for.
One of the most important documents is your business plan. This describes your business in great detail, to include your business goals, how you’ll reach those goals, and a timeframe for achieving them.
Your lender will also likely ask for:
– Business financial statements, such as balance sheets, profit and loss statements, and cash flow statements
– Personal financial information, such as your credit report
– Income tax returns
– Loan application history
Legal documents, such as your business license, business certificate, and any third-party contracts, may also be requested.
Gather all these documents before applying for a loan. This way you don’t slow down the process because you’re missing an important form.
Are You Eligible for a Business Loan?
Lenders look are several factors to determine if a business owner is eligible for a loan. To improve your chances of getting approved, work to build a strong business credit score. If you’re just starting out, make sure your personal credit score is in good shape.
Each lender has different qualifications, but they all typically look at your time in business, cash flow, debt load, collateral, and industry.
If you’ve been in business for a few months, have steady cash flow, very little debt, and tangible assets to secure a loan, you’re in a great position to get approved. But don’t hesitate to shop around the find the best funding types and rates to match your needs.
Final Thoughts
Getting a business loan is a big step in growing your business. Whether you need funding for equipment or if you need a line of credit to have access to a revolving liquidity, applying for business funding will enable you to take your business further down the road to success.
