Vanta Small Business Loans

Learn The Crucial Steps Involved In Getting Your Small Business Loan

Many lenders, alternative and traditional alike, offer small business loans. These are loans that you can use to grow your business, hire new employees, improve your sales and marketing work, expand your business into new territories, and fund research and development.

Know What Loans Are Available

There are many different kinds of small business loans that are available in the current market. Options will vary based on the needs of your business, the particular loan terms, and how long the loan will be. The following are just some of the many small business loan options available:

Small Business Line Of Credit: With this, you can get access to funds from a lender but only as you need them. The amount of accessible funds will have an upper limit or cap, but having a line of credit can be useful in properly managing unexpected expenses and small business cash flow. A fee is usually involved in establishing a line of credit, but you’re also not likely to get charged any interest unless you actually draw the funds you need. Interest is usually paid on a monthly basis, with the principal drawn down on your line of credit in a way that is amortized over many years. Keep in mind that the majority of credit lines have to be renewed on an annual basis, and this often involves an extra fee. If your credit line isn’t renewed, then you have to pay it all off at that time.
Accounts Receivable Financing: An AR line of credit is one that is secured with the accounts receivable of your small business. AR lines of credit can provide immediate cash with a variable interest rate but based on the volume of your small business’ accounts receivable. As your customers and clients pay their accounts receivable, the AR line also gets paid down.
Working Capital Loans: Working capital loans are used by small businesses to finance their routine operations. Businesses utilize such loans in order to deal with revenue and expense fluctuations that might happen because of seasonal cycles or other situations in their industry. Certain working capital loans can be unsecured, but a small business without any or much credit history is going to have to offer a personal guarantee or some kind of loan collateral. Working capital loans are often short-term arrangements from 30 days up to just 1 full year. Small business loans of this kind usually run from $5,000 up to $100,000.
Small Business Term Loans: These are usually set for specific dollar amounts and applied towards expansion, capital expenditures, or small business operations. Interest usually gets paid down on a monthly basis, with principal repayable in a 6-month to 3-year time-frame, either through a term amortization or ending balloon payment. Interest might be fixed or variable, and these loans can also be both secured or not. Small businesses needing growth capital or facing massive singular expenditures can benefit from these.
SBA Small Business Loans: The United States Small Business Administration guarantees and backs up banks that offer small business loans with low rates and attractive terms. The SBA guarantees usually mean that repayment terms and interest rates are far better for a small business than a lot of other loans. The SBA website lists the top 100 SBA lenders as measured by volume, and loan figures run from $30,000 up to $5,000,000. Do know that this loan process does take time, and the requirements are stringent.
Equipment Loans: Small businesses can use these loans to purchase the equipment that they need. It’s normal for a down payment of at least 20 percent to be mandatory. Also, the equipment itself secures the loan. Principal is typically amortized over two to four years, with monthly interest payments at either variable or fixed rates. These equipment loans are sometimes arranged as leases instead to purchase software, vehicles, and equipment. Loan amounts run from $5,000 up to $500,000.
Small Business Credit Cards: A number of small business owners are understandably wary of using these, but they can work as a means of short-term financing. Interest rates vary based on the issuer, how much is available on each card, and the cardholder’s creditworthiness. A lot of small business credit cards mandate that the small business’ principal owner be equally liable with their company.

Be Ready For Your Own Credit And Risk Profile To Be Analyzed

Lenders typically make their final decisions about small business loans simply based on the credit and risk profile of the borrower that is applying.

How Organize All Your Financial Statements

Based on how big your loan is going to be, the lender is likely to thoroughly analyze your financial statements and other accounting records. Given that, you need to be sure that they are all correct, complete, and detailed. This includes cash flow statements, income and loss statements, and your balance sheet. Be ready to answer specific and in-depth questions regarding your cash flow, debt-to-equity ratio, accounts receivable, accounts payable, gross margin, EBITDA, and much more. You should think about having an accountant go over your financial statements in order to predict specific issues that a lender might bring up.

Lenders have a known preference for any financial statements that have undergone an audit by a CPA, or certified public accountant. However, quite a few small businesses don’t enjoy the costs involved with an audit. Still, there is a quicker and more affordable option, which is having a CPA ‘review’ financial statements. You should know that certain lenders might not actually mandate statements to be reviewed or audited.

Get Thorough Information To Use In Any Small Business Loan Application

If you really want your small business loan to work out, then you need to be ready to offer thorough documents and information regarding your company. Organization, detail, and preparation are key.

Be Ready To State The Amount You Need To Borrow And What You Plan On Doing With That Loan

The lender is going to ask about just how much funding you need, as well as how you plan to use the loan funding. Is this loan for capital expenditures or equipment, tools, and machinery? Are you going to expand or go hiring? Will you be growing your inventory? Do you plan on improving your sales and marketing activities? What about R&D? Are you pursuing fresh product development? Is your small business eyeing expansion into fresh buildings or areas?

You might want to make sure you borrow a bit more than you think you need, just in case a cash crunch hits your small business for a few months. This will help you prevent defaulting on your loan, which is something that you never want to do.

Identify What Kind of Guarantee Or Security You Can Offer

Lenders are going to emphasize your capacity to pay the loan back. Lenders can enjoy some security interest just due to small business assets, such as property, equipment, and accounts receivable, among other things. However, a borrower can use a guarantee or personal security on the line in order to improve how favorable their loan terms. Certain lenders might even mandate a personal guarantee from a small business’ principal owner. If you can, avoid this, since it will risk your own personal assets as the owner of the small business, on top of risking the assets of your company.

Review The Proposed Business Loan For Its Key Terms

You need to be sure that any proposed business loan is one that makes good sense for your own company. In order to do this, you need to review the lender’s proposed key terms. Make sure you compare and contrast them with any terms that other lenders make available to you.

Analyze Your Small Business Postings And Profiles Online

Small business lenders do their homework, which is more technically known as due diligence. That includes reviewing any information online they can find about a business and/or the principal owner of that business. Anticipate this by looking up all that yourself in advance, and make deletions or changes as need be.

Continue Educating Yourself About The Small Business Lending Process

These 10 pointers are certainly good things to know, but don’t stop here. The more you learn about the procedures and possibilities in small business lending, then the better your chances are in getting a great loan.

A multitude of lenders offer small business loans via many different choices, so you can find something that is well-suited for your business and its current financial circumstances. If you can anticipate in advance what any of these lenders are going to need and look over, then you can improve your odds of getting a small business loan that is advantageous to your company.