Finding a small business loan is not as hard as it looks, but it can be confusing.
How much money do I need and when do I need it?
List everything you’ll need for your business, whether it’s simply a domain for your website, or it’s a large warehouse filled with inventory or a brick-and-mortar storefront. List all the equipment you’ll need. Then do some Google searching to determine the price of each of these items. Your goal is to figure out exactly how much money you’re going to need and what you’ll use it for.
Recently, a borrower was frustrated that he didn’t receive a low-interest loan offer from a bank, and he thought he was being taken advantage of, mainly because he just received an auto loan from that same bank for 9%. What he didn’t realize was that 9% on an auto loan does not indicate a good credit score when those with good credit score get offers of 2% or lower.
You can receive a free credit report from the three major credit reporting agencies. Each one will charge you a small fee to see your actual credit score. Alternatively, you can get an unofficial score estimated at CreditKarma.com.
Look at your credit score, understand where you are compared to other people, so you can have a better idea of which loan product will work best for you. If it’s not as high as you’d like it to be, you can also work to raise your score.
Am I flexible?
What collateral do I have?
A large amount of loan types require some form of collateral. This could be the equipment for your business, your car, even your house or retirement. Whenever you’re putting collateral on a loan, make sure you can pay it back, and you’ve consulted with your financial people. If you don’t pay back the loan, the lender has the right to take your collateral. Make sure you’re not taking too big of a risk with collateral.
Business line of credit
Business credit cards or lines of credit are one of the most flexible financing options to help your business, and can be a fast way to get your small business up and going. Credit lines are great for getting the money you need when you need it. When a business gets a line of credit, they basically have a cushion for any hardships that might come along.
Traditional term loan
A term loan is what most people think of when they think of a business loan. This is the kind of loan you’d usually get from your bank, with the monthly payments and lower interest rates. These are usually backed by some form of collateral, whether it be a car or a house. These loans generally are a little tougher to get, and can take longer to get as well.
Factoring is also known as accounts receivable financing or invoice advancing. Factoring can help small businesses deal with large projects or expansion.