How to Choose the Right Business Loan

Startups and small businesses rarely have the funding they need to get a booming start. In fact, the average small business owner starts off with about $10,000. Most, if not all of this money, is self-funded. But, business expenses add up quickly and $10,000 is rarely enough to get a company going.

Thankfully there are all sorts of lending options that can help you receive the capital you need to ensure your company’s success. One of the most common options is a business loan. These loans can be used for all sorts of expenses, including real estate, inventory, staffing, and much more.

But, you’ll find that the world of business loans can be a bit confusing. There are dozens of lenders and dozens of loans to choose from. Before signing the dotted line, you’ll want to know all there is to know about business loans. We’re here to make the process a little less daunting! We’ll discuss the top 4 tips for choosing the right business loan for your company.

  1. Analyze Internally First

Before you apply for any type of loan, you want to have a thorough understanding of your business’ finances. Analyzing your company’s finances will help you determine how big of a loan you require. It will also help with your chances of loan approval.

Lenders will want to see a history of performance and profit. This makes you much less of a risk in the eyes of a lender. If you need help examining your company’s budget, use a tool such as QuickBooks to get a holistic and detailed view of your business’ performance.

  1. Know the Purpose

Obviously you aren’t seeking a business loan just because, but having a reason behind applying for a loan will help you choose the right type of lending. Are you looking to finally get the ball rolling with your startup? Do you need capital to grow your business? Have day-to-day expenses gotten more expensive than you imagined?

It’s also important to know how much money you need. You want to avoid applying for too big of a loan that you won’t be able to repay each month. Choose an amount that covers your expenses and is an amount you can comfortably pay back.

  1. Be Aware of Loan Options

There are dozens of types of loans available to both large and small businesses. Knowing your purpose allows you match with the right loan option. Here are some of the most common business loans.

  • Line-of-credit loans. These loans are most popular, especially for financial emergencies and cash flow issues. Line-of-credit loans are short term loans, with terms lasting about a year. With low interest rates, this type of loan is ideal for paying for inventory purchases as well as for daily operating costs.

 

  • Installment loans. These loans can be used to pay for any type of business expense. With an installment loan, money is deposited into the business checking account. Interested is determined from the day you sign the loan contract until the last day of the loan term. You can get an installment loan with up to a 7-year term.

 

  • Secured or unsecured loans. If your company has a solid credit history paired with a successful business record, a lender may be willing to offer you an unsecured loan. This means that the lender deems you as low risk therefore collateral isn’t needed to act as a source of secondary payment. But, if you’re a startup company with minimal background, expect to be offered a secure loan.
  1. Read Loan Reviews

After you’ve done some digging into your company’s finances and determined the best type of loan for your situation, you’re ready to start shopping around. Online you’ll find dozens of lenders that offer business loans.

But, you don’t want to settle for the first name that you come across. Instead, you’ll want to solidify your choice by reading business loan reviews. Reading reviews and customer testimonials helps to ensure that you are choosing reputable and trusted lender.

These reviews also provide useful information such as:

  • Loan qualifications and eligibility factors
  • Loan details (ie. interest rates, loan amounts, fees, etc.)
  • Benefits and drawbacks
  • Information about the lender
  • Underwriting process

Reading reviews makes the process of learning about each lender much easier. There’s nothing more frustrating than having to read page upon page of information to get the data points you need. By using business loan reviews, you can quickly browse lists of pertinent data, allowing you to determine if a specific loan is right for your company.

Conclusion

Finding the right business loan can be a long process. But, lending confidently and wisely helps to ensure your business’ success. Financial hardship caused by over-lending can turn a company on its side. If you need to secure capital, do your homework before making a final decision.