how do small business loans work

How to Qualify for a Small Business Loan

by Webmaster Engage | 3 months ago

Running a small business can sometimes be a huge chore, but organising your finances and business loans doesn’t necessarily have to be. In this article we’re going to look at some of the things that you’ll need in order to secure that loan your new business needs to get off the ground, or to get you the extra funds to take your already existing business to the next level. There are many types of different small business loans for many different businesses but finding what’s going to work for you can be daunting. Just follow our tips and guidelines and you’ll soon be a guru when it comes to small business loans. 

Before you Apply:

Have a plan and do your homework

When you’re trying to secure your loan there’s a bit of planning and preparation that you should do in order to optimize your chances of success. First, you're going to want to start with a solid business plan, to possible lenders this is a key step in whether or not you are worth investing in. One of the best ways to get your plan in order is to have a chat with an accountant or broker. The biggest advantage in doing this is that they have experience applying for loans and know what lenders will be looking for. 

When you apply for a loan there will be certain information that will be required, such as; whether the loan will be secured or unsecured, rate of interest and repayment, and potentially you will need projected income of the business. These are all important things to think about and plan before you start your application.

When the bank or lender asks for your business plan you will need to show them the size of the potential opportunity, specifically how the loan will be used, and any key risks that need to be identified as well as how you plan to minimise them. Providing a budget to the lender breaking down how you intend to make repayments, and any profit or loss reports if available are a really good way to show the lender your intentions and reliability with the loan. While not every business loan is secured it is highly likely that you will need to provide some form of security in order to secure larger loans for your business.

Approaching a lender with a solid business plan and targets will help you to get your foot in the door and put you on the right path to success.

Keep on top of your finances

One of the biggest mistakes people make with personal finances is not staying ahead of them or keeping them organised. This is the same with businesses, when banks or other lenders are looking at your application they will assess your credit score as well as reviewing all your financial information. So this is why it's super important to regularly check your financials and ensure that as a business owner or operator you keep on top of any payments and balances as well ensuring your bank accounts don’t go into unarranged overdrafts. Something that a lot of people are unaware of is that everytime you apply for a loan it will affect your credit score and so applying for lots of loans with various lenders is not always the best option to secure your money.

When Applying:

When you apply for your Small Business Loan there are a few big decisions you will need to make, one of the biggest ones is whether or not you will have a secured loan or unsecured loan. A secured loan is one where you offer something, usually equal to the value of the loan, to the lender as ‘collateral’  and is a great option for people looking for a lower interest rate, higher borrow limit or longer repayment terms, however there can be disadvantages to this type of loan. You will have to provide some ‘assets’ to secure the loan and can potentially risk losing these if you are unable to back the loan. An unsecured loan can offer a safer alternative in some ways such as having no need for any assets to be provided for collateral, however these loans are usually a lot smaller and have much higher interest rates on shorter  repayment terms.

There are a few things the bank will require from you when you submit your application and it's important to understand what these are; Business Plan, Financials, Creditworthiness, and Security. 

So now that we’ve explored the fundamentals of obtaining your small business the only step left is for you to start dreaming of your next business venture. So if you’re looking for a quick and reliable financial solution get in touch with one of our super friendly Spinach teams today for us to discuss ways we can help you today.