Small business loans can help your business evolve into a much larger—and, hopefully, much more profitable—operation. With an adequate supply of funding, your business will be able to pay off its debts, be able to accept larger projects, and even be able to consider opening an additional branch or location.
Small business loans are clearly beneficial for many established business owners, which is why thousands of entrepreneurs decide to apply for such a loan with each passing day. However, while the benefits of small business loans might be apparent, that doesn’t mean you should simply apply for the first loan that happens to come your way. Finding the perfect source of business funding will require plenty of research and planning.
In this article, we will discuss some of the most effective ways your business can prepare to receive an easy to get small business loan. By making an active effort to prepare in advance, not only will your business be much more likely to qualify for the loan of your choice—but your business will also be able to secure a much lower interest rate.
1. Establish an Excellent Credit Score
Naturally, the surest way for your business to secure cheap capital is by having a history of paying all loans back on time and in full. Businesses with an established credit history can secure loans for rates significantly lower than their newer counterparts, potentially helping them save thousands of dollars over time.
Establishing a good personal credit score can often take a little bit of time, but your efforts will be well rewarded. Even if your business has no intention of going into debt, you can still open one small line of credit, use it to pay for a single expense (such as utilities) and then build your credit by paying it off immediately.
2. Prepare All Relevant Financial Reports
When reviewing small business loan applications, there are many different variables that lenders will consider. As you might expect, your business’ financial reports will often be extremely relevant.
Financial reports include your income statements, your balance sheet, your statement of cash flows, and other relevant reports. Not only will these reports need to be guaranteed to be accurate—inaccurate reporting could potentially qualify as fraud—but they will also need to be well-organized and easy to read. Taking the time to finalize your reports will pay off in the long run.
3. Identify Why You Need the Loan
Though your business could just apply for working capital, in general, you might be able to secure a better interest rate by applying for a loan that is tied to a specific project. If the purpose of the loan is to rebuild your office, for example, consider applying for a construction-specific loan.
There are countless different small business loans ready and available for you to choose from. If you can determine the details surrounding the project in advance, you’ll have a much easier time discovering (and ultimately qualifying for) alternative financing options. At the very least, creating a specific project plan will demonstrate to lenders that your business takes the application process very seriously.
4. Consider Applying Online
Online loan applications can often be filled out in a relatively short amount of time. These applications will typically ask about several different components of your business, including your typical revenues, business structure, credit background, and various other details.
Online applications are not only easier for the applicants, but they also make things easier for the lenders themselves. Some applications can be processed and approved (or disapproved) in less than one hour. Others may require a bit more time, though these more exclusive loans often offer better perks or superior rates.
5. Gather Multiple Quotes
Even if the first loan you see seems as if it is an incredible deal, it is important to realize the term “incredible” is one that is highly relative. If there are, in fact, many superior loans available on the market, and an apparently good deal can seem like a bad deal in a very short amount of time.
Before making any final decisions, it is very important to compare the many different small business loan options that are currently available. Contrary to popular relief, the interest rates attached to these loans are far from universal. There may be several lenders that view you as a “prime” lender, while others will consider you to be “subprime” (and thus demand a higher interest). If you do end up choosing to go with the first loan that you applied for, you’ll still be glad that you took the time to explore the other available options.
6. Use Existing Capital as Leverage
Generally speaking, all loans will fall into one of two given categories. Secured loans will use something that you own—such as property—as leverage to help you secure a better interest rate. When you use property as leverage, you are essentially saying that you are so confident you’ll be able to pay the loan back on time that you are willing to risk something that is already intrinsically valuable to you. Unsecured loans, on the other hand, do not have any sort of physical collateral. These loans, which may be more difficult to qualify for, will use your credit score and collections agencies to generate “leverage.”
By using existing capital as leverage, you can either increase the number of loans your established business qualifies for or decrease the rate you will be expected to pay each month. Most lenders offer both leveraged and unleveraged loans, meaning it will be worth your time to compare the available choices.
7. Consider Getting Help from the SBA
The Small Business Administration (SBA) is a decades-old agency, created by the federal government, designed to help small businesses secure alternative sources of financing. Traditionally, SBA loan programs have been designed to cater to new businesses, though these loans can also be quite beneficial for businesses that are already established.
The SBA does not issue loans itself, rather, it helps guarantee certain loans to increase the number of funding options that small business owners will have access to. SBA loans are usually granted to businesses that have tried to secure funding elsewhere but were ultimately unsuccessful. While these loans may not be the ideal option for your business (they are relatively hard to apply for), they are certainly worth taking the time to consider.
8. Compare Different Terms
Not all loans are designed nor created equally. As suggested, even at the same lending institution, you’ll inevitably find some loans that make sense for your business and others that simply do not. Rather than rushing through the lending process, speak with a representative and see how various different loan terms can make a major difference.
What would happen to the interest rate if you extended the repayment term length of the loan to ten years instead of five? How much more could you end up paying if you used a variable—rather than a fixed—interest rate? Do you prefer a linear or time-adjusted lending structure? These are just a few of the questions that might emerge along the way. To find the right answers, you’ll need to prepare in advance.
Conclusion
Small business loans can be incredibly useful, though many small business owners wrongly assume that these loans must be too expensive and must be out of reach. However, this is rarely—if ever—the case. There are likely plenty of affordable small business finance solutions available for both new and established businesses alike. Capital Collaboration offers a plethora of affordable funding options for businesses at all stages. By taking the time to explore your wide world of options, your business can secure the financing it needs and can continue moving forward.
