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Whether you are just starting out, expanding, or having temporary cash flow difficulties, if you run a business, there will come a time when you need financing. This page on how to get a business loan outlines what you need to know.
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Whether you are just starting out, expanding, or having temporary cash flow difficulties, if you run a business, there will come a time when you need financing. This page on how to get a business loan outlines what you need to know.
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Introduction
- There are many different types of debt financing you can use for your business. You increase the odds of getting what you need if you understand your the assets you have that could serve as collateral, know what type of financing you need, and have a good relationship with your banker.
Step 1: Assess Your Collateral
- Most business loans are secured by collateral. That means that you pledge assets that the bank can seize and sell to repay the loan if you don't meet your commitments.
- Accounts receivable
- Factoring your accounts receivable can be a quick way to generate cash.
- Equipment or property
- If the loan is to purchase real property or equipment, the bank will usually require the title to secure the loan.
- Personal assets
- Regardless of whether you are incorporated or not, if you don't have enough business assets to securing the financing you're requesting, the bank will generally require you to pledge personal assets to secure the loan.
Step 2: Determine the Type of Loan You Need
- When determining the type of financing you need, you should consider:
- How much money you need
- The loan's purpose
- Desired repayment terms
- Types of financing available include:
- Line of credit
- A financing option that is drawn down as needed.
- Business loan
- Can be of any amount
- Terms set by the bank
- SBA loan
- A business loan guaranteed by the SBA
- Usually requires a personal guarantee
Step 3: Meet With Your Banker
- Although you can apply to any bank for a loan, you'll get the best terms with a bank that you have a relationship with. They know you, your business, and, as they have a pre-existing relationship with you, are invested in your success. Before meeting with your banker, you should have prepared:
- A completed loan application
- Most recent financial statements
- If the loan will finance expansion, a business plan laying out the details of the new venture
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