What is a Small Business Loan?
Small Business Loans are funds provided by a lender to businesses for a variety of business reasons. Business Loans are usually either secured or unsecured. Secured business loans are secured against assets or property. This is used as insurance for the lender if the loan isn’t repaid. Unsecured Business Loans aren’t secured against anything but, the eligibility criteria is usually stricter with higher interest rates. Small Business Loans can be used to finance growth opportunities, stabilise cash flow problems, purchase stock or equipment, marketing, advertising and expansion.
Related Article: Secured or Unsecured Business Loan?
There are things to consider when getting a business loan. Here are some do’s and don’ts of obtaining business finance:
DON’T put through lots of loan applications:
Applying for multiple loans can seem like a good idea at the time, so you can choose from the best deal. But, putting through multiple applications for finance will result in damaging your credit file. Every credit enquiry you place can lower your credit score and also makes you less likely to be approved.
DO your research before applying and understand the loan you are applying for:
Understanding the loan you are applying for will help you to choose the right one. There are a lot of different finance options for businesses. Doing your research into different loans can be tedious and time-consuming but worth it in the long run. Things to take into account when researching different loans are:
- Interest Rates
- Terms and Conditions
- Extra Costs for Making Extra Repayments
- What Fees are Involved
DO get a loan at the right time for you and your business:
Make sure you know exactly how much funds you need and what you are using the funds for, to make sure it is the right time to take out the loan. Having a business financial plan in place will help you to determine what loan your business can afford to take out.
Related Article: Cash Flow For Your Business
DON’T underestimate the importance of knowing your credit file:
Your business credit score and personal credit score can make an impact on whether you get approved for finance. Knowing your credit score and what’s on your credit file will give you an idea of your chances of getting approved for a loan. Keeping track of your credit file will also allow you to pick up any errors you might not have known about.
DO make sure your business’s financial records are up to date:
Majority of lenders will look at a business’s financials to assess how your business’s health and how it is performing. Having your paperwork in order and being organized with the business’s financial records will increase your probability of approval. Hiring an accountant is a great way to make sure your financial records are kept well organised.
Following these simple Do’s and Don’ts will make getting finance for your business less challenging. Keeping organised and preparing accordingly will give your business the best chance with finance moving forward.
See our other articles and tips here.