Small businesses face an uphill battle in so many ways. But when it comes to getting the funding that they need, sometimes business loans are the only way to go. This means needing to know enough to not get taken.
Funding for a small business is vital in more ways than we can list here. But there is more to know about procuring a business loan than meets the eye.
Here are five tips that can help you when it comes time to secure the proper funding.
5 Tips For Procuring A Small Business Loan
1. Do the Homework
One of the biggest mistakes any business owner can make is just agreeing to terms on a business loan without doing the homework first. It can mean entering into less than favorable terms or getting a higher interest rate than they may have otherwise gotten.
The more that business owners know about their financial situation, the industry, and the competition, the better positioned the business will be to apply for the funding that they need. The goal should not be to just secure funding, it should be about landing the best rate and the most favorable terms, too.
2. Watch Your Credit
Although it isn’t the only factor when it comes to small business loans, factor still remains one of the most important factors in the process. If you aren’t sure what your credit situation looks like, pull your report and give it a good look.
Check for anything that could be dragging your credit down. Maybe there are bills in collections or an invalid claim on your report. By working to clean it up and improve your credit score, it could mean being in the position necessary to land that short-term funding.
3. Know How Much You Need
Without a doubt, one of the largest mistakes that small businesses make is not knowing how much that they actually need to borrow. The problem with this is that they end up applying or being approved for far too much money and can’t pay it back.
Know precisely what your business needs and don’t overextend it just because you can. There are different types of loans that max out at certain amounts. Be aware of these types of loan and their limitations as well before applying. This money is needed but too much or too little can be damaging in the long run.
4. Don’t Do it Alone
Far too many small business owners take on the task of landing a loan all unto themselves. But the simple fact of the matter is that even the most educated among us can struggle with situations like these.
Having the help of a financial consultant, for instance, can mean avoiding crucial mistakes when landing funding. In the end, it can save time, hassle, and a ton of money for the business that could be better diverted into other areas of the business. We all need a little help sometimes.
5. Key Person Insurance
Though none of us wants to think about it, planning for the unfortunate and unexpected insurance is crucial. This is where key person insurance is a must. Some requirements on small business loans means having life insurance that is either greater than or equal to the loan amount and the term length that is greater than or equal to the loan term.
The goal here is to protect against the unexpected. It gives the lender some measure of protection in the event that the borrower passes away before paying off the remainder of the loan. This is not great to think about, but it is a vital part of the process.
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