A small business loan can make a massive difference, whether you're in the early stages of launching a business, dealing with expansion needs, or trying to maintain access to capital. It's a good idea to understand some of the basics of the process of getting a loan, and here are four things you ought to know.
Business Credit Ratings Are Different
There's a good chance you have some familiarity with the FICO score system that rates personal credit on a scale from 300 to 850. In the business world, a similar algorithm is used, but the scale goes from 0 to 100. Also, each of the major credit rating bureaus uses its own standards for rating the creditworthiness of businesses.
It's not a big deal, though, because the same logic applies if you want to build good credit for a small enterprise. Pay your bills in a timely manner. Don't overextend your credit without good cause. Repay your loans on schedule. Maintain some amount of credit at all times to finance basic operations, repairs, and upgrades.
America has an agency dedicated to funding small businesses. The appropriately named Small Business Administration provides loans to qualified businesses to help them with startup and expansion expenses. Also, the SBA provides a wide range of options from microloans to larger loans for millions of dollars.
If you're not sure where to start, a small business loan provider will typically have an officer who is dedicated to dealing with SBA issues. Contact them and tell them what your needs are, and they'll try to match you with the option that most closely suits your needs.
Whether you're looking for a loan that's SBA-backed or a more standard one, it's a good idea to come armed with documentation. You should try to assemble at least the last two years' worth of your personal and business tax returns. Ask your accountant to assemble a balance sheet and income statement, too. If you've filed articles of incorporation, make copies of those. You may also want to develop 5- and 10-year financial projections for your business so the lender can follow what your plans and goals are.
Unless you have a long and sterling credit record, the bank will probably not offer an unsecured loan. A loan is secured when it is backed with collateral, assets that the lender can seize and sell to make back part of its losses if you default. Real estate works best, but some types of equipment also have value.
To learn more, contact a lender that offers small business loans.