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Delancey Street is a premier small business lender, based out of NYC, that has helped broker 100's of millions in business loans. They are a pro, at making sure you get all of your financing needs satisfied.
- Over $200 million in funding secured
- Can handle low risk credit
- Handles all industries
- Handles high risk and low risk loans
Top Things You Need to Know Before Applying for a Small Business Loan
As a small business owner, acquiring funds is necessary for expansion, like hiring new employees or purchasing new equipment, and increasing sales by opening a storefront. If your business is facing a capital deficit, getting a small business loan may be an attractive option. However, obtaining these loans can be notoriously difficult and complicated. Moreover, losing collateral when something goes wrong in the business is another risk you would be taking.
Applying for a small business loan entails the possibility of acceptance or denial of your application. There is also a chance that you may get caught in a lending trap. Relax! Here are the top things you need to know before applying for a small business loan.
Be Sure You Really Need the Loan
It seems obvious, but it’s not always simple for startups to figure out how much financing they need and their specific reasons for applying for a loan. Savvy business owners should know what they want and the best way to articulate it clearly.
The primary reasons to apply for a small business loan include:
– Purchasing real estate and expanding the business operation
– Buying equipment and inventory
– Increasing working capital for everyday business operations
Your credit or financial status and reason(s) for seeking the loan are the two factors on which loan approval depends.
Know Your Credit Scores
Your credit scores reveal how responsible you have been regarding your debts over time. It is what the lender considers when reviewing your creditworthiness. A low credit score will make it challenging to obtain a loan. Banks look at both types of credit scores.
Business or Commercial: Establishing company credit history is important as it makes it easier and quicker to get credit. Getting a federal tax ID number is the first step, and the credit bureaus, such as Experian and Equifax, start tracking when a supplier lets you buy now and pay later.
Personal: As a business owner, if you have a personal account-related to your small business loans or credit, it still counts in the lending decision. The lender checks FICO or VantageScore to know your performance.
Many businesses do not realize that they must keep their personal and business accounts separate. Both types of credit are affected by payment histories, high outstanding balances, and high utilization rates.
Improve Your Credit Score
Before applying for small business loans, it’s essential to make sure your credit score is where it needs to be for higher chances of loan approval.
Here are simple strategies that can help raise both your personal and business credit scores:
– Get your business credit report for free under the Fair Credit Reporting Act using Nav or CreditSignals site. Use any websites such as Credit Karma and FreeCreditReport.com for personal reports.
– Verify that the report is error-free.
– For any tax liens, get a payment plan in place.
– If you have existing debts with creditors, reach out to them and pay down as soon as possible.
– Strategies like keeping old accounts open even after paying them off or purchasing on installment besides diversifying your purchases can help improve your score.
– Avoid opening multiple accounts at once.
– Hire credit monitoring companies to reduce stress and anxiety over financials.
Get a Firm Grasp of Your Use Case
Being smart about how much you need and determining the affordability aspect can help prevent difficulties repaying the loan. Several business owners acquire a small business loan, but have difficulty paying it back.
Here are ways to handle discover how much you require and determine what the funds received from the loan amount will be used for:
– Create a budget outlining the costs of your objectives and requirements.
– Support your small business loan application with financial statements, including your balance sheet along with the income statement.
– Provide your cash flow statement providing other two stated above. This statement reflects where you’re making money and whether or not your business is making any gains. Your business being unprofitable doesn’t mean the end of the loan, but banks are interested to know how you plan on fixing this situation.
Apply for the Loan
After completing all the necessary pre-loan requirements mentioned above, its time to move forward and apply for a small business loan. Ensure your financial statements, accounts payable and receivable, and tax returns are suitable and ready for review by the lender.
If you get approval, lenders use your financials to determine the amount theyll offer, including an interest rate (which can be fixed or variable). The interest rate refers to the cost of borrowing the principal loan amount. The offer comes with an annual percentage rate or APR, which is a broader measure of the loan and shows you the yearly interest alongside the service charges and other associated fees.
Double-check both the APR and the interest rate on the offered deal to decide if the small business loan is right for you. It’s important to note that low-interest rates may have higher APRs, making the loan more expensive in reality despite the appealing sticker price.
The process of getting a small business loan may seem daunting and complicated. However, with smart thinking, knowing the reasons behind acquiring these loans, and coming prepared with financial statements and credit scores, obtaining one doesnt have to be challenging. By following the tips mentioned earlier, you will be well-equipped when applying for your small business loan.