Loans are not bad. In fact, many businesses have had loans at one point because of different reasons, such as issues with cash flow, the need to expand, or to purchase new equipment. If you need cash because it’s necessary for adding value to the business, and you don’t have enough of it in the bank, a loan could be your only option.
If you’re considering taking out a business loan from reliable companies, such as Nation 21 Loans, you have to know all your options. Take note that not all business loans are the same. There are several factors you need to look out for in order to make the right type of loan.
Here are some things you need to keep in mind before applying for a business loan:
Create A Business Plan
Before you go and apply for a loan, you need to have a business plan. The business plan will eliminate guesswork. With a business plan, you’ll know exactly how much you need and where to spend the money on.
It’ll also lay out the company’s plan on how to pay for the business loan, which will be useful when you start applying for the loan because the lenders will definitely ask for it.
Don’t Apply For A Loan To Several Different Lenders At The Same Time
A lot of people don’t know this, but your credit score will be greatly affected if you apply for several business loans from different lenders at the same time. While it’s a good idea to scout several good finance companies in case your loan is not approved by your first choice, it’s definitely unwise to immediately apply for a loan at these finance companies at the same time.
When you ask a finance company for a quote, they’ll have to check your credit score. By doing this, they need to do a soft credit pull. This process will not affect your credit score at all. However, it’s a different matter when you start processing a business loan application. The lender will have to do a hard credit pull that can create a little dent on your credit score. So, when you apply for several loans from different companies at the same time, there’s a huge chance that you’ll be rejected.
What you can do is find finance companies that you’ll want to apply for a business loan and check their requirements if you qualify. Submit your business loan applications to the top three companies that will most likely approve your application.
Understand The Different Types of Loans
There are several types of business loans, and if you want to get fast approval, you need to understand each and every single one of them and make a decision on which one you need.
Here are examples of the different types of business loans:
- SBA or Small Administration Loans
- Business Lines of Credit
- Invoice Factoring
- Traditional Business Loans
- Specialty Loans
Each type of loan may have different conditions, so you need to ask the finance company you want to work with on how it works and what the conditions are.
Improve Your Credit Score
If you know how your personal credit score works, then it’s easy for you to understand your business credit score. When your business credit score is too low, your loan application will most likely be rejected. You can try to obtain your credit score through some paid agencies, but there are also websites that offer it for free.
When you find out that your credit score is lower than the requirements of finance companies, you’ll need to improve it. There are several ways on how you can do that, such as paying your bills on time, improving your credit utilization ratio, and paying up collection agencies so that they would delete negative reports.
Find Out About Prepayment Penalties
Many borrowers are enthusiastic about paying off their loans as early as possible. They would pay a bigger amount than what’s expected each month until they fully pay the whole loan before the agreed-upon date. While this is a good thing, if you want to do this, however, you should ask the finance company if there are prepayment penalties.
When you pay off your loan early, this means that you also pay less interest, which could be a loss for the finance company. Always read the fine print before signing a contract.
Applying for a business loan is not as intimidating as it actually sounds. Research and preparation are the keys to get approval.
When you know what documents the finance company will be asking for and your credit score is good, the chances of your loan being approved are always higher.