Things to Consider
If you’re a first time borrower, there are a few questions you need to ask yourself to ensure you and your business are ready to take on a loan. We’ve put together a few things that every small business owner should consider before moving forward with the lending process.
- What do you need the money for?
Examples of answers would be working capital, equipment, real estate purchases, or inventory.
- How much money do you need?
The size of your loan might be a helpful indicator of the type of loan you want. For example, a microloan maxes out at about $50,000, whereas traditional banks can fund loans over $250,000.
- How long will it take you to pay it back?
While there are several different types of loans, one thing they all have in common is some form of interest rate. It’s important to remember that the longer it takes you to pay back the loan, the more you will pay in interest.
- What is the current financial shape of your business?
The best way to prepare for taking out a loan is to evaluate the financial state of your business. It’s helpful to compile your financial statements, including profits/loss and cash flow, and have an updated business plan. Once you have a good understanding of these financials, you’ll be better equipped to choose the best loan for your business.
- How long have you been in business?
While there are a few lenders that specialize in helping new businesses find capital, many will require that you’ve been in business for at least a year in order to qualify for a loan.
- How much collateral, if any, do you have to put up for the loan?
Many lenders will require you to put down a percentage of your collateral when you take out a loan. Collateral are typically assets of your business, such as equipment and real estate, which support loan repayment.
- How quickly do you need the money?
Some loan types, like Small Business Administration (SBA) loans or traditional bank loans, have high wait times. It’s best to be prepared, and know your options if you need quick approval.
VIDEO: Consider these key questions before applying for a small business loan
In this video, we review some key questions to ask when seeking funding. And when you’re ready to apply for a loan, we have partners in your area who can help you through the process.