5 Things Small Businesses Should Do When Applying For Loans
Loans for business can be a challenging prospect if you aren’t fully prepared, and if you haven’t researched your business loan options.
Loan Amount. Firstly, you need to establish how much money you need to borrow, and how you intend to use these funds in a way that will help or save your business. Loans for business are all about outcomes. You don’t borrow money for no reason, but it is important to plan your strategy first.
Too many business owners see something they need to borrow money for, but don’t do a Cost-Benefit Analysis first. You also need to look around your business to see if there is likely to be anything else you will need to borrow money for.
It is better to get all the money you need in one go, rather than going back to the lender at a later date for a business loan top-up.
Planning. Then you need to work out your preferred loan term. The shorter the loan term, the higher the loan repayments. The repayments need to match your budget and your cashflow. Put simply, the loan for your business must be affordable.
There are some great business loan calculators online which will assist you in planning what your business loan repayments will look like.
Apply for the Right Loan for Your Business. This is very important as too many business owners tend to just apply for whatever loan for business, they think will get them the money at the cheapest rate. There are two problems with this. Firstly, you may not qualify for the business loan type you are applying for. This just leads to your time being wasted and another hit on your credit file.
Secondly, some business loans are very restrictive, and come with very short terms. Yes, you may be able to afford it, but it puts a lot of stress on your cashflow.
On the other hand, you may be applying for a business loan with a much longer term, but the cost over time does not represent the best value for money.
Shop around and do your research when looking for loans for business. There are so many options these days, and most don’t involve having to go to a bank.
Now you can choose from unsecured business loans, equipment finance, private 1st mortgages, private 2nd mortgages, business caveat loans, short term bridging loans, invoice financing, sale and lease back options on equipment.
Most of these business loan options aren’t available from your bank and are often very easy to get approved for. To add to the good news, most of these business loan options can also be funded in 1 to 2 days, and the secured business loan options require almost no paperwork.
Your credit history is also a big factor on which type of business loan you will be successful in obtaining. Some loans for business require a high credit score. Whereas some of the secured business loan options will lend to business owners with a much lower credit score, because they have the real estate security to fall back on.
Talk to Your Accountant. Loans for business are fully tax deductible, so it is important you give a copy of the loan contracts to your accountant at tax time so the costs of the loan, can be used to reduce your tax bill.
If you have bought an asset with the money you borrowed, make sure you have those details ready for your accountant so the item can be depreciated or written off. This also reduces your tax bill.
Some larger loans for business require tax returns to be completed for the previous financial year, so if you are seeking a larger loan amount, you should arrange to get all of your tax returns fully up to date. This also includes your own personal tax returns.
If you have an overdue tax bill, this is close off many business finance options. However, don’t despair. There are still options available to you if you have sufficient equity in real estate security. These options are the secured loans for business, such as 1st and 2nd mortgages, caveat loans, and business bridging loans.
Depending on the lender, most of these loans don’t require up to date tax returns, and are generally very light on paperwork. However, you do need to be able to offer real estate security.
If you do have an overdue tax debt, you may need to get this paid before you can qualify for some loans for business, such as equipment finance. So, what do you do if you don’t have the money to pay that tax debt?
That’s a common problem and it is often a “catch 22” that stops a lot of businesses from obtaining business finance. However there is a little known solution, and they are secured business loans. As mentioned before, these loans are also known as caveat loans, private 1st mortgages and 2nd mortgages. These privately funded secured business loans are often the quick solution to getting the tax debt paid and out of the way. The sooner it is cleared up, the better. This is for a lot of reasons, not least the fact that the Tax Office could foreclose on you of the debt isn’t paid.
Be Ready. Have everything ready to go for when your business loan is funded. Don’t get caught holding the money in your bank account and paying interest on that money unnecessarily. Be prepared and have everything ready to go for when the funds from your new business loan are ready to be advanced.
So, look at your current personal and business situation, and then look around at the variety of business loan options. Remember that the cheapest interest rate isn’t always the best path to take. You need to find the business loan that it perfect for your needs and for your current circumstances.