Whether you’ve just started your small business or have operations quickly expanding, you may need a loan to support your growth. If you are thinking about applying for small business loans, you should carefully decide which loan is right for you.*
Here are the six things to consider when getting a small business loan:
1. Your current business and personal credit score
Before you submit your application for financing, you should review your personal and business credit reports. Not only can your credit standing affect your chances for approval for the loan, your costs of borrowing could be high depending on your credit history. Review both your personal and business credit reports to determine whether you should improve your credit before moving forward with your application.
2. Whether you need collateral
As you research your options for small business loans, you will come across lenders who require collateral before they approve your loan. In fact, 90 percent of loans less than $100,000 required some form of collateral.** This is a security measure to protect the lender in case the borrower is unable to pay back the loan. Requested collateral often includes assets associated with the business – ranging from accounts receivable to equipment to inventory – as well as personal assets, such as your home.
List of the items or assets you plan to purchase with your small business loan.
3. What are you using this financing for?
When you apply for financing, it’s important to be clear on the purpose of the funds you are requesting. Lenders will not provide funds for every business purpose and frequently have restrictions. Therefore it’s important to make sure that your use of funds is supported by the lender. This can include equipment, rental space, hiring employees, purchasing a business, or paying off debt. Make it clear to the lender so you make sure you have a good match.
4. Can your business qualify for SBA?
When exploring your options for financing, one option is a loan through the U.S. Small Business Administration (SBA). An SBA loan is a popular choice for companies, but business owners will have to determine whether they qualify for approval first. The SBA has a specific set of criteria for approval and requires and requires substantial business and personal documentation. To prepare, collect the documents you will need for your loan application, including business formation documents, lease agreements, income tax returns, and financial and bank statements. The SBA will assess your financing needs based on these documents and determine whether you meet eligibility requirements.
5. Can you pay it back and maintain cash flow?
As you narrow down your options for applying for a small business loan, another important point of consideration is whether you can repay the loan and still have sufficient cash to manage and grow your business. Review the repayment terms that are offered by the lender and make sure you can repay the loan and have sufficient cash left over. Many lenders will require you to pay daily, weekly or monthly with high repayment amounts. Don’t fall into the trap of solving a cash problem today that creates a bigger problem tomorrow.
6. The myth of MCA or daily payment loans
Businesses may have heard of a non-bank loan called a Merchant Cash Advance (MCA). While they may be familiar with an MCA as a way to obtain capital up front based on their total sales volumes, business owners should be wary of using an MCA due to the high costs and large payments that are repaid daily from credit card sales.
If you find you may not qualify for a conventional loan, consider borrowing from an alternative lender like LoanMe. Compared to big banks and lenders that require stacks of paperwork and collateral, LoanMe requires only a bank statement, proof of income and a valid ID. In addition, LoanMe does not require business credit, does not have restrictions on use of funds for the loan, and does not require collateral.
Apply for a small business loan online from LoanMe’s site or call to speak with a live agent 24 hours a day, seven days a week.
*This article has been prepared for general information purposes only. The information presented is not legal, financial, tax or accounting advice, is not to be acted on as such, and is subject to change without notice.Credit approval is subject to LoanMe’s credit standards, and actual terms (including actual loan amount) may vary by applicant. LoanMe requires certain supporting documentation with each new application. If you have any questions regarding this, call us at 844-311–2274. California loans are made pursuant to LoanMe’s California Department of Business Oversight Finance Lenders Law License #603K061. LoanMe also offers loans in certain other states which may have higher minimum loan amounts. Copyright © 2015 LoanMe, Inc. All rights reserved.