Before you apply for a small business loan, follow a few easy tips to ensure you get the right loan for your needs. With options ranging from loans from the Small Business Administration (SBA) to merchant cash advances, there are many programs available to today’s business owner. With so many programs, it’s often tricky to know exactly which loan is going to be best in the long run. Here are some expert tips.
Figure Out the Full Amount You’ll Need
When you borrow money, you need to pay close attention to exactly how much you need. Certain programs limit the amount you can borrow and may not be available to you. For example, the SBA’s Microloan Program allows loans of up to $50,000, while the SBA 504 Loan Program allows for commercial real estate and equipment loans of as much as $5.5 million. If you need more than these amounts, you'll have to look at other options.
What Can You Afford to Pay and How Long Can You Afford It?
Calculate your average monthly revenues and expenses and figure out exactly how much you can afford. You want a loan payment that takes up as little of your excess revenue as possible. This is where it’s advantageous to compare interest rates, repayment terms, and loan fees to ensure you’re getting the amount you need for the lowest monthly payment possible.
Do You Have Collateral?
By offering collateral, banks and other financial institutions offer lower interest rates. If you fail to repay, they get something of value in return that they can use to pay off the amount you borrowed. For a new company, collateral may be tricky to come up with. A lack of collateral doesn’t mean you will not qualify for a loan, but it will often lead to higher rates and less borrowing power.
Take a Close Look at Your Company’s Past, Present, and Future Finances
Monthly revenues, especially in retail or hospitality industries, often fluctuate. Busy seasons, wholesale prices, and utilities go through seasonal and other fluctuations that drive up your expenses or reduce income. Consider those factors when deciding how much you can afford to borrow. If heating fuel rates suddenly skyrocket and you haven’t planned for the increase, you’ll find yourself struggling to keep up with bills.
By better understanding your company’s financial picture, you’ll quickly narrow down the list of loan options. Once you’ve found the right business loan option, apply online. The professionals at Capital Loan Hub work with dozens of lenders and ensure you have multiple offers to compare before making a final decision.