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Jun 2015

7 Things Small Business Owners Need to Know before Applying for a Loan

June 20, 2015
Capify Australia

For a small business, having funds fosters convenience and speeds up the process of generating profits. Taking other jobs consumes time, a luxury that not everyone has, and given today’s swiftly changing business trends, an enterprise should beef up its operations as soon as possible. In many cases, small business loans are the way to go. Large sums of cash can be procured in short periods.

However, before settling for any business lending deal on the market, banks and crediting firms have a slew of requirements for loan applicants. Understanding the different means of small business funding is an instant advantage, as you’ll see all of your options, specifically those that are deemed suitable to your needs. Let’s take a look at some of the things you need to know before applying for a loan.


1. Know your finances

Determining the exact amount needed to fund an operation or venture is essential prior to securing any sort of business lending deal, more so if you can pinpoint exactly where you will allocate the money. The last thing you would want is to get a deficient sum, which comes with a successive stream of premiums. A company might wind up focusing on hurdling premium payments as opposed to growing the business.

Ideally, you should review every step of the business process and identify the financial allocation for those needing constant funding. The idea is to monitor your cash flow, so you have a firm grasp on where your money is supposed to go. This way, selecting the most applicable types of business loans shouldn’t be too tricky.

2. Identify and understand your options

There are different types of organisations that offer small business loans, including the government, banks and alternative lenders – each offering a corresponding set of financial packages and premiums.

Alternative lenders feature a quick and relatively easy application process, allowing business owners to secure funds in a matter of days. Flexible financing agreements, such as the merchant cash advance and unsecured business loans, are handed out as options for potential clientele.

3. Have an impressive credit rating

One of the first things that a lending institution evaluates is an applicant’s credit score. It represents a company’s ability to settle debt, which gives the impression of security for lenders. After all, a financier aims to earn from the loan through interest coming from paid premiums. Those with impressive credit scores backed with a well-documented credit history are more likely to secure loans.

To create a strong case for potential lenders, you can prepare both your business credit history as well as the history of your personal credit – provided that you have an impeccable score. The rating and history represent your business’ financial performance, so make sure that every transaction is accurate and documented.

4. Prepare a thorough business plan

For most lending institutions, having an impressive credit rating isn’t enough; they have to determine if your business has paved at least one avenue for success. A business plan explains your business and how it works. It also depicts the amount of potential profits you can secure in the near future as well as your ROI.

A comprehensive business plan fosters security for lending firms, particularly if your projections are attainable and the rate of returns is significantly large. It may be tedious to prepare one, but it certainly boosts your chance of bagging a loan from any lender.

5. Prepare your resume and financial statements

Similar to the business plan, your personal resume and your company’s financial statements prove that you’ll be able to generate significant profit en route to settling the premiums in a timely manner. Your resume documents your skills and qualifications as a professional, while the financial statements display your company’s performance. In evaluating both, lenders will feel secure that they’ll get returns and eventually earnings from the loan without hitches.

6. Determine your collateral

As a measure of security, most lenders require their applicants to tie their would-be debts to physical assets in the event that the loan can’t be settled. This means that the creditor will claim those assets in place of cash, if necessary. Collateral is a huge risk on your part, especially if you assign assets that are critical to your business. It can serve as motivation to grow your profits quickly, and at the same time, it assures lenders that the premiums will be settled by all means necessary.

7. The alternative lending option

Most of the aforementioned requirements are not easy to produce or prepare, and if a business owner is pressed for time, they’ll probably make do with what they have and hope for the best. That used to be the case. Nowadays, you can simply avail of alternative financing if you badly need fast business loans. Application is quick and convenient, with many alternative lending firms conducting business online. You’ll get your cash in a few days and go through a rather lenient application process – not needing a business plan, financial statements and collateral.

Alternative lenders often dangle several loan options to potential clients, including merchant cash advances and unsecured business loans. The “more forgiving” payment terms make the premiums relatively easier to pay.

A merchant cash advance deducts from credit card sales, while unsecured business loan premiums come as small daily payments. Debtors won’t have to burden themselves with enormous sums to settle at the end of a payment period.

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