Four out of every five small businesses fail within the first year. Since small businesses have such a huge failure rate, applying for a business loan for a small business is very hard. Applying for an unsecured business loan for a startup enterprise can be much more complicated than a secured loan at times. A strong credit score and income history are almost a requirement for any type of loan in today’s financial market.
What You Need
When you apply for a business loan you will need what seems like a laundry list of items and documents for the lender. A quick list of needed things would include:
Personal assets – property, equipment, vehicles or bank accounts
Business plan – the blueprint for the business operation and success.
Financial plan – the where, when, and how the money will be spent.
These are the three basic things needed for any business loan.
The SBA
When applying for a business loan, especially for a small start up, you might want to chose a lender which deals with the Small Business Administration (SBA). The SBA usually is used as a guaranty that the lender will receive payment in the event that you default on the loan. While these lenders will be easier to work with, the SBA will have its own set of requirements which you must meet before they will work with you.
Business profile – this is basically the same as a business plan
Personal credit history – your credit report
Business financial statements – accounts receivable and cash flow projections
Collateral – what assets you are willing to put into the business
This will usually require you to meet with an advisor from the SBA before seeing the lender to secure the guaranty for the loan.
What To Watch For
When applying for a business loan, you will find many lenders who are eager to sit and talk about their financial products with you. With this comes a range of terms, conditions and interest rates which you must consider before taking out any loan. Here are a few things to watch for:
The fine print – be sure to read the fine print at the bottom of any contract or form. This is the legal standing of the lender which gives them certain rights and resources once you sign on the line.
The cost of the loan – while you have figured out the cost of running the business, also look for how much it will cost to have a loan with certain lenders. Costs and fees associated with unsecured business loans will vary with each one.
The interest rate – while some lenders will be willing to offer you the money you need, be aware that the interest rate on some products will be extremely high in comparison with normal rates. Be aware of what the normal range is.
The payment terms and conditions – while the lender may be offering you lower payments and better terms on you loan, consider the overall cost of the payments and how much more the payback will be over time.
Applying for a business loan is simple. Getting a small business loan is easy. Finding an attractive small business loan is the hard part.
