Guide to Business Loans

Business loans are loans specifically tailored for enterprising business people who are just starting their own companies or existing companies needing additional funding for expansion or restructuring. Business loans serve a variety of needs for both new and established businesses. Business loans come in a variety of options depending on the rate of interest and the preferred repayment needs.

Applying for business loans is a more involved process than applying for a personal or home loan. The requirements are evaluated differently and the standards to be met are stricter than for a secured personal loan. Your options will also depend on the bank you are dealing with; banks offer different loan packages, each with its’ own particular set of terms and conditions.

While you can check out what your own bank has to offer, it is worth investigating the business loans being offered by other banks as well. For an established business, business loans enable additional cash flows to provide funds for fresh purchases, making essential payments for payroll and rent etc. Business loans are also acquired to meet needs of refinancing money borrowed previously from banks and other financial institutions.

How It Works

Once you start the loan application process, banks and other financial institutions become very interested in your creditworthiness and credit rating, since this determines how much money they will lend you and how much interest you will pay on the loans you take. These ratings indicate whether or not yours is a high risk loan.

In order to decide whether to get a loan, you should take a careful look at your business’s investment needs. Then you should look at your cash position. Your decision about how to fund whatever you wish to invest in should depend on your cash position but also on your business position because when you take out a loan, you are preserving your cash position, which means that your liquidity is also preserved.

You will find it a lot more difficult to get business loans on favourable conditions if you are in dire need of cash. This is because your interest rate and amount you can be loaned will depend on your ability to pay your loan back. If your cash position is precarious, then you’ll find that your interest rate is higher as the lender would feel that they are taking more risk. Should your cash position be strong, then you’ll get better loan conditions.

In order to improve your chances of getting business loans, you need to show the lender why you will be reliable with your loan repayments. If you have accounts, show the lender your earnings history, and if possible a realistic assessment of your future earnings potential. It will also help you if you have personally invested in your own business. This will show the lender that your interest will be aligned with theirs, and you are both sharing the risks in your business. Should you be a sole trader, you will be responsible and liable for the repayments. In a partnership, all partners will be jointly responsible. Finally, if you are a company, the directors are likely to be liable.

Start Up Business Loan Beginner’s Guide – What You Should Know Before You Borrow

If you are considering a start up business loan to finance your new venture, be certain that you have all the facts. Fully understanding the commercial loan process is paramount to making the right decision. 

Let’s explore the 5 key factors which shape the entire loan approval process.
Key Factor #1: Do you have a sound business plan?
In addition to the loan application paperwork, a commercial lender will need to see your small business plan. You must prove that your business is viable on paper and demonstrate exactly how and when your new business will turn a profit. No reputable lender will hand over a loan check without first ensuring that your new business will have the ability to pay back the borrowed funds.
Key Factor #2: Do you have good personal credit?
Even with the best possible small business plan, it is highly unlikely that you will be approved for a start up business loan without a reasonable credit history. A lender determines the lending risk by evaluating your personal credit worthiness. Please understand and consider that you are entering into a legally binding agreement in which you promise to make timely, scheduled repayments. Your past credit history is the only evidence available to a potential lender, indicating how you have repaid other debtors in the past. 

Key Factor #3: What collateral do you have to secure the loan?
Notice I didn’t write “do you have collateral”. You absolutely must have collateral to be approved for a standard commercial loan. This also includes SBA guaranteed loans. Please believe me when I tell you that the US Small Business Administration is not in the business of guaranteeing “high risk” commercial loans. A commonly used source of collateral for a start up business loan is the equity in your home, or other real estate you may own. Therefore, the start up loan is secured on this real estate. If you fail to repay the loan, your property may be at risk.
Key factor #4: What are you planning to use the money for?
In addition to demonstrating that you have need of a loan (in other words, you do not have other means of obtaining the funds to start a business), you must also indicate to a lender what you will be spending the money on. The lender must approve of how you intend to spend the loan. If you wanted to spend your start up business loan on research and development, the lender must approve. No matter for what or how you intended to spend the loan amount, it must be approved by the lender.   This is usually spelled out in your small business plan.
Key Factor #5: What if you decide to repay the loan early?
Did you know that you can be hit with prepayment penalties of as much as 5% for paying off your loan early? This even applies to SBA guaranteed loans. Keep in mind, lenders are in business to make money. They only make money on interest repayments, not the principal loan amount. If you pay your loan off too early, they will lose out on potential profits!
Some Potential Problems…

What is you have poor credit or don’t own a home? Are you still able to secure a start up business loan? The answer is likely no. You can however check out alternative lending sources, such as peer-to-peer lending groups like Prosper or Loanio.
What is the Solution?
The solution is to find a sound alternative to taking out a BIG bank loan in the first place. Consider bootstrapping your new business. As a Start Up Business Consultant, I help budding entrepreneurs find low cost alternatives to loan financing. Clients who have purchased my eBook have found the money they need for small business success. You can find absolutely free sources of business start up funding to make your dream of small business ownership a start up success story — even if you have bad credit or don’t own a home!
© 2009 Kimberly Kelly – All Rights reserved
This article may only be reprinted in its entirety, including author byline, bio and with all live links in tact.

How to Save Thousands Every Month by Finding the Right Commercial Loan

Finding the right commercial loan for your business is kind of like finding the right pair of black pants to wear. How do you know what your options are? How do you differentiate between your options? How do you know which will fit you best?

Well, there is no foolproof solution to finding the perfect business loan. In fact, the process can be quite daunting and difficult to weed through. You’ll have to devote time, effort and resources to finding the loan solution that works best for your individual needs and your specific business. You’ll have to educate yourself on the borrowing process and understand how to package your loan request, shining the best light possible on your business to make it attractive to prospective lenders.

Much like choosing that perfect pair of black pants, commercial loans may all look the same at first. But if you dig deep enough, you will soon discover just how many options and differences there really are. And unlike selecting your pants, the consequences of selecting the wrong business loan can be significant.

Finding the right loan for your business can save you hundreds, even thousands each month. How? By achieving longer terms and lower interest rates. Take a look at these three simple tips for saving money when choosing your business loan:

1. Research. Research. Research. Take the time to research your options. Perform online searches, talk to others in your industry and seek out lenders who specialize in your specific business who may be able to offer insight into the process. The more knowledgeable you are the better chance you will have to make a well-informed, well-managed decision.

2. Put your best foot forward. Once you have selected the type of loan you want to apply for, you will need to make sure your loan package is complete. Highlight your business strengths and prove that your business can afford and manage the loan you seek. Take the time to position your commercial loan request for success. Every detail will count toward making a favorable impression, and ultimately, securing the best possible loan offers.

3. Approach multiple lenders. While you don’t want to apply to every lender under the sun, it is important to maximize your chances for approval by targeting the lenders most likely to provide the best financing. This may not be your friendly neighborhood banker. Proper preparation will help you maximize your commercial loan options and minimize your risk.

And here’s a special tip for those seeking funeral home loans. Your business falls into what bankers call “special use” properties. This limits which banks will be interested in financing your transaction and presents unique challenges.
The good news is that there are lenders and loan programs specifically interested in financing funeral homes. Some are willing to provide acquisition loans, others prefer refinancing, some are focused on government backed loan programs and others make conventional loans.

Depending on your knowledge of loan programs and funeral home lenders, you can either manage the loan process on your own or work with a funeral home financing specialist. These experts carefully monitor what lenders are actively making loans to funeral homes as well as the types of loan programs available.

When you find the right funeral home financing specialist, you will be expertly guided through the financing process and increase your chances of securing the best loan for your unique situation.

Whether you work with a specialist or secure financing on your own, remember that knowledge is power. Learn what your options are, complete a well organized loan submission package, target appropriate lenders and the odds will be in your favor.