For the first time, you are ready to go out on your own and open your own business. You’ve done your research, set up your corporation or LLC, and now you’re ready to take the plunge and buy everything you need to launch your business—including your new commercial kitchen. Now all you need is some cash to make it happen, but how hard will it be to get a business loan? Here’s what you need to know about getting started with commercial financing as an entrepreneur.
The Benefits of getting a Business Loan
Starting a new business is hard work, and often requires an investment of time and money. If it seems impossible to get off the ground, consider taking out a business loan. There are various types of loans to suit your needs. Some have more flexible repayment schedules than others.
They also range in interest rates depending on how risky they are, so do your research and take into account any restrictions you might have with regard to what your future prospects are. A word of caution: even though getting an SBA-backed small-business loan may seem like an easy answer to all your problems, be wary of the high-interest rates that come with these types of loans.
Additionally, even though SBA loans don’t require collateral, they do require a large credit check and good repayment history. If that doesn’t work for you, consider other small-business loans. These are typically given by local banks and should be available through your own bank as well.
Unlike big banks, however, small-business loan officers may not have access to huge data sets on your credit history, so they rely heavily on recommendations from friends and family members to determine whether or not they can trust you with their money. Therefore, having a credible network is absolutely crucial if you want to get one of these loans.
The criteria for getting a Business Loan
More than one million small businesses and startups in the United States every year are denied access to startup capital. About two-thirds of those who apply for loans get rejected. So how do you go about getting the funds necessary to start up your own company? Keep reading to find out.
The first step is finding out whether or not your idea is viable, since there’s no point in applying for a loan if your business won’t be profitable. The easiest way to figure this out is by researching similar companies and comparing what they sell, their location, and their average number of employees against the costs of opening an operation of that size.
If your idea passes the viability test, it’s time to prepare yourself to make your case to lenders. First and foremost, that means getting all of your financial information in order. This includes your net worth and cash flow (meaning how much money is coming in and out of your company), revenue projections, expenses projections, and most importantly details on how much financing you need and why. If lenders can’t see clearly what you need funds for – not just that you need them – they’re less likely to give them to you.
Different types of Loans
Most banks and lenders offer three types of loans that are best for different situations. For example, if you’re looking for a loan to start or expand your business, it would be advantageous to take out an equity-based or non-equity-based debt because they don’t require any collateral and won’t affect your personal credit score.
The third type is called asset-based loans which require some kind of collateral but may have lower interest rates and better terms than other forms of borrowing. The type of lending situation that best fits your needs should be the one pursued, though consideration will have to be given for how long the financing is needed as well as what else has been determined about the company’s requirements.
What matters most when deciding on what type of financing is necessary for a particular business venture isn’t just the dollar amount – it’s also whether there are more benefits with one form over another in order to get back more money at the end of the day.
How much can I borrow as an entrepreneur?
How much can an entrepreneur borrow? Lenders typically lend $500,000 or less to entrepreneurs. For example, Citibank’s Small Business Development Center offers up to $500,000 in loans while JP Morgan Chase offers up to $250,000 in loans. But no matter what the offer is, one should always be prepared for rejection!
Pros and cons of self-certification process
The federal government’s self-certification process makes it easy for small businesses to get up and running. But beware, there are many ways in which the process can go wrong, resulting in damage to your credit or even losing control of your company. Here are some things to keep in mind when starting the self-certification process:
-Find out how much money you need. You should also take into account the cost of setting up your business – lawyers fees, accounting fees etc., as well as set aside at least 3 months’ worth of living expenses for yourself and any employees.
-Make sure all costs are considered. This includes not just setting up an office but also having supplies on hand and operating capital.
-Consider what type of loan would be best for you. There are different types of loans, such as lines of credit, short-term loans, and long-term loans that have varying interest rates.
-Research reputable lenders. Be careful if they offer guaranteed approval with no paperwork required because this usually means they will charge a higher interest rate than other companies offering more traditional loans.
Overall, getting approved for a business loan is becoming more difficult because banks want to protect themselves from high-risk borrowers who may be unable to repay their debts on time or even pay back the principal amount borrowed in full; this means more red tape and more hoops to jump through before you’re approved.
Tips for applying for different types of Business Loans.
There are many types of loans for starting and running your own business. Here are a few different loans, including how to apply for them and their pros and cons.
*SBA Loans: The SBA is an independent agency of the U.S. government charged with supporting small businesses, especially those in historically unserved areas or industries.
*Microloans: These types of loans have traditionally been targeted at entrepreneurs in developing countries with lower incomes, but they’re becoming more popular in the United States as well.
Helpful advice from experts on applying for a Startup Capital
- Plan for the worst, hope for the best. Your startup dreams are just that — dreams. If you go into your plan expecting it to fail, then if it does, you will have prepared yourself mentally and financially. If it succeeds, consider your debt forgiven!
- Figure out what kind of business would work best with your background and what financial aid is available to start such a company. Find an idea that is big enough in scale to have potential future revenue but not so big that current revenue is required to support it during its infancy phase (which could easily bankrupt an enterprise).
- Discuss your idea with an employee at your local bank or financial institution. Let them know what kind of capital is needed when it will be required and for what purpose, and how much collateral might be offered in return (if any). Tell them what kinds of concerns you have about obtaining that capital. If they show genuine interest in your proposal, they may even offer to refer you to someone who might be able to help!