Starting a business takes money. This isn’t an insider secret or advice. This is a cold hard fact. However, what you do with that startup money could be the single most important decision you ever make as a business owner. You probably caught that word “startup” – and it’s important to know that a startup is a (usually smaller) business of any nature that’s just getting started. Now, to officially qualify, a business must be less than five years old, focused on a single product or service, and not already extremely successful.
If this describes your business, we’re about to give you a four-step guide on how to prepare and qualify for the small business loan of your dreams. First, it’s important to discuss four common types of small business loans. Bear in mind that the four-step process that follows applies to each of these different loan types. Also bear in mind that American Business Credit offers a multitude of loan types, specializing in dealing with small businesses. We want to help you along your way with this guide but call us now to talk live with an expert on our incredible loan options.
Four Common Loan Types
There are several types of small business loans, and an even larger number of companies that offer them. Finding out which one is best for your business takes due diligence and may require digging deeper than the following four types. Call us now to discuss which would be the absolute best loan option for your small business.
Business Line of Credit
Think of this as having a credit card, just with your credit all at once, and without the plastic. With approval, you’ll be given credit up to a certain amount, and you will only be responsible for paying back (with interest) the amount you actually borrow. For example, say you qualify for a $75,000 business line of credit loan with an interest rate of 5%. If you choose to only borrow $50,000, you’ll only be responsible for paying back the $50,000 plus the 5% interest of $2,500.
This can be extremely handy because some other loans are fixed amounts. Business line of credit loans offer flexibility. It’s a sort of all-purpose loan; the funds can be used for any aspect of your business, from inventory to paying debt, from payroll to covering the costs of that unexpected worksite accident that insurance won’t fully cover. Plus, once you repay the line of credit, it opens back up fully. You could potentially have the loan open for years.
Put rather simply, equipment financing means receiving a loan for the exact cost of all needed business equipment. If your business requires more than the average amount of equipment in order to function, absolutely consider equipment financing. The equipment itself acts as collateral and secures the loan for the lender, and the borrower is able to utilize the equipment immediately for business. Equipment finance is truly a win-win situation when properly handled, and therefore many companies take advantage of it.
Bear in mind there are two distinct types of equipment finance: leasing and financing for ownership. Just as with automobile leasing, equipment leasing involves paying a monthly fee in order to utilize the equipment for a set number of months. Upon the end of the term, the lessee may decide to return the equipment or take ownership upon a balloon payment. Financing for ownership entails you owning the equipment upon the end of the term.
Business Credit Cards
Easily the most popular form of funding for a startup, business credit cards come with low interest rates and quick availability of funds. If you don’t already have a line of credit open under your business’ name, a business credit card is an especially lucrative option. We recommend not using a personal credit card for your business. It’s just too easy for the financial records to cross paths and become misconstrued. Also, as a pro tip, before you even apply for a business credit card, make sure to have a plan implemented as to what qualifies for a business purchase and which employee(s) can use the card.
They work the exact same way as a traditional credit card, except the cardholder is the business, and the terms rely much heavier on the business credit score as opposed to your personal score. Another pro tip? Spend an entire workday researching deals and their fine print. Some credit cards offer 0% APR and others offer cashback rewards. Make a pro/con list and weigh your options!
We can assume you’ve already contacted your personal bank, or other banks, to see what they may have to offer. Sometimes you’ll get a great deal. However, more and more, small business owners are turning to independent lenders due to competitive rates, and perhaps more importantly, better customer service. Independent lenders are sort of like the mom-and-pop version of big banks. Sometimes you’ll find that not only are the prices more than fair, but the quality of the product and the service you receive are unbeatable.
Take us into consideration. American Business Credit, aka ABC Biz Loans, is one of those mom-and-pop independent lenders, and we do indeed offer competitive rates with unbeatable customer service. Again, as with finding the right credit card, it is your responsibility to have due diligence when choosing a lender. However, don’t just take our word that we’re among the best. Call us now and let us prove it.
The Four-Step Method
Okay, now you should have a much better idea of what kind of loan you want for your small business. It’s time to prepare. Consider this a sort-of scientific method, except instead of running experiments you’re trying to qualify for the best small business loan you can. Obviously, you will find there to be additional steps to these, but every single business is different… each business’ additional steps will also be different. The following four steps should be taken by every single business owner prior to applying for any loan.
We recommend starting with equipment costs. Calculate everything: cash registers, security cameras, computers, machinery, vehicles, furniture, even office supplies. Next, move to inventory purchases. How much is it going to cost you to initially stock everything you want to? This is obvious for retail stores, but even service providers have inventory. Now calculate the costs of permits, licenses, etc. including rent and any fees or taxes that come along with it. Lastly, consider payroll. This may take a lot of guesswork at first, but always aim a little high.
Gather Documents and Forms
It might seem intimidating as a startup owner to be applying for a large loan when you don’t have a proven history of success. Don’t let it get to you. All you need to do is prepare as best you can. The obvious documents include all business licenses, tax forms, certifications and things of that nature. However, there are three additional forms you’ll want to have handy.
First, prepare a business plan. Outline exactly what you plan to sell, how to plan to sell it, how much you think you’ll make, and what you’ll do with your profits. Next, be sure to register your business. This may seem obvious, but make sure you have all your ducks in a row. Lastly, be sure to have every single bank-related document associated with your business ready. Don’t forget your updated resume!
Maximize Likelihood of Qualifying
Check your business credit score! This is the predominant factor when it comes to maximizing your loan efficiency. It’s basically a numerical version of how much the lender can trust you’ll repay. Before you apply, make sure you’ve maximized your credit score by paying off any outstanding debts. Another important factor is time in business. This is exactly what it sounds like. Lenders are attracted to borrowers whose businesses have been in operation for a while. This doesn’t mean a brand-new business can’t get a loan! It just means it might be worthwhile to try and accumulate some success as a business without a loan yet. If this isn’t an option for you, it’s OK! You still have plenty of options.
Your annual revenue is also important, (and again this is more for those who have an established business already). Obviously better P&L ratios mean better loans. Lastly, consider your cash flow. Weed out all the unnecessary expenses and make sure every last penny of your spending is crucial. Remember though not to be too stingy! It does indeed take money to make money, so don’t short yourself!
Choose the Right Lender
While there may never be a such thing as a “best” lender, there is always the right lender. We saved this step for last with good reason. By now, you should know what type of loan is best for you and should be prepared to apply for it. Now’s the time to pick the company. Of course, you’re on our website, and we’re going to promote ourselves. But seriously, give us a call. You can call anyone else you want on of that, but we guarantee to find you the best loan for your business.
If our A+ rating with the Better Business Bureau doesn’t say it all, we’ve helped over 10,000 small business get started, funding more than $100,000,000 so far. Join us and thrive. Call today.