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All You Need To Know About Business Loans
You have a great business idea, which you would want to get on with. You have planned the course you are going to follow to start or expand your business. Estimation of required assets and funds has been done and you are ready to start investing money.
You might even have a bit of the capital amount but you need to get the rest from external sources. That is when financial institutions come at play. Commercial banks, government institutions, and short term lenders etc.
provide you with the financial help you need to start your business or meet the investment needs of an ongoing one.
Though these sources of finance are for the purpose of giving you with the money you need, there is a procedure that is to be followed.
The Eligibility of your Business
The first aspect of applying for a small business loan is to find out whether you, or rather your business, are eligible or not. The parameters that decide the eligibility of your business for a loan include age of the business, turnover, and credit profile.
Age of business- Your business needs to be at least one-year-old in order for you to get an unsecured loan, business overdraft, and line of credit. Some short term lenders and alternative agencies do provide unsecured small business start up loans but you might have to pay a high interest amount. Short term finance for equipment, purchase of inventory etc. does not take the age into account.
Turnover- Since the lenders will want to know if you will be able to pay off the loan, they will ask for your turnover, which needs to be over 50,000 per annum. Some lenders just calculate the turnover through software to find out the amount your business is eligible for. The amount that you are applying for will decide the turnover you will need.
Credit profile- Both your personal and business credit history matters a lot. Unpaid loans and tax debts might cause a problem.
Cost of the loan
Analyse the cash flow and estimate the profits your start up business might make to find out if it can sustain the loan amount. If you are up and running, then look at the profits you have been making and might make in future.
Compare business loans
There will be multiple loans and schemes that might sound plausible to you. However, it is always prudent to compare interest rates, fees, penalties, and duration of the loan to get the best deal.
What do the lenders take into account?
Credit card volume
If your business receives money through credit card then the lenders might check the volume of payments, based on the assumption that you might pay your loan with it
If you are applying for a business loan during the restructuring process, some lenders might not offer you with the money.
Whether your business already had debt from some other lender. This usually goes into the application form and might pose a problem if the debt is too high.
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