How Small Business Financing Works
Congratulations! You have decided to launch your small business. In the midst of a rebounding economy, many entrepreneurs are optimistic about their prospects. However, one ongoing concern among business owners is financing. If you need funds to make payroll or to set up a production line, you may decide to take out a loan. Before you proceed, here is an overview of the lending process.
Finding a Lender
Loans for small businesses are available from traditional banks, online lenders, and credit unions. Research the loan programs that are being offered, which include interest rates and repayment terms. If you are starting a new business or you don’t have collateral, you may be able to obtain a loan that is guaranteed by the Small Business Administration (SBA).
Submitting an Application
The loan application process is quite detailed, requiring several pieces of information. The lending institution will want to know if you have previous business experience. Additionally, you will be asked to provide specifics about the company, such as a detailed business plan, revenue projections, and how the funds will be used. You will need to furnish personal information, comprising of your credit history, personal assets, and previous tax returns.
The structure of the loan will depend on a number of factors, including the interest rate and the size of the loan. If you have personally guaranteed the loan with collateral, such as your primary residence, you may receive a lower interest rate. The repayment schedule may consist of monthly installments or a lump sum payment at the end of the term. When you are completing your application, check to see if you will be paying any additional charges, such as loan origination fees.
Some lending institutions require you to submit a personal guarantee to secure your small business loan. This means if you stop making your payments, the creditor has the right to seize your personal assets to cover the amount you owe. If you default on the loan, the lender may go to civil court to obtain a judgment against you. The judgment can be removed when you pay the debt or file for bankruptcy.
Every new business needs sufficient funds to turn ideas into reality. Using a business loan to finance your venture will give you the cash flow you need while you maintain control over your company. If you are able to identify a lender who has an interest in working with you over the long term, you will have a foundation for success.