Choosing your business loan
so you have plenty of choices for your business loan—but what kind should you actually get ?
well, you ’ ll have to figure that out for yourself. fortunately, we ’ re here to guide you. here ’ s a bit-by-bit process for finding the right lend for your needs .
Step 1: Nail down why you need a loan
first, you need to decide precisely why you need a loanword. How will a loanword help your business grow ? What specifically will you use the money on ?
Your answers will narrow down the type of loan you need. If you need financing to improve cash flow, for example, you might decide on a line of credit. Or if you want to purchase a new building, you ’ ll decidedly want a commercial veridical estate loanword .
Your answers will narrow down the type of loan you need. If you need financing to improve cash menstruate, for example, you might decide on a line of credit. Or if you want to purchase a new build, you ’ ll decidedly want a commercial real estate of the realm loanword .
Some uses—like paying for marketing campaigns or buy inventory—may apply to many types of loans. But with this first step, you should be able to get at least a little closer to narrowing down your options .
Before we go on, though, some real spill the beans : keep in take care that some reasons for getting a lend are better than others. If getting a lend will help you expand your occupation and increase your profit, that ’ s a pretty good reason. But if you ’ re getting a loanword as a last-ditch measure to keep your business from going subaqueous, you should think doubly about borrow .
Do you very need a loan, or do you need to reevaluate your business ’ mho spend and budget ? Will a loanword actually help your occupation recover and boom, or will it be like putting on a Band-Aid when you ’ re bleeding out ? The death thing you want to do is incur debt you can ’ thymine pay off .
sol borrow wisely .
Best Small-Business Loans Lendio Best overall
Fundera by NerdWallet Best for SBA microloans
Funding circle Best for established businesses
BlueVine Best for fast financing
Fundbox Best for young businesses
Learn more about our circus tent brands. Your answers will narrow down the type of loan you need. If you need financing to improve cash flow, for example, you might decide on a cable of credit. Or if you want to purchase a raw build, you ’ ll decidedly want a commercial real estate loan.
Some uses—like paying for marketing campaigns or buying inventory—may apply to many types of loans. But with this first footstep, you should be able to get at least a little closer to narrowing down your options .
Before we go on, though, some real talk : hold in beware that some reasons for getting a lend are better than others. If getting a loanword will help you expand your occupation and increase your profit, that ’ s a pretty good reason. But if you ’ re getting a loanword as a last-ditch measure to keep your occupation from going submerged, you should think twice about borrow .
Do you very need a loanword, or do you need to reevaluate your business ’ second spend and budget ? Will a loanword actually help your business recover and boom, or will it be like putting on a Band-Aid when you ’ re bleeding out ? The last thing you want to do is receive debt you can ’ metric ton pay off .
thus adopt wisely .
fund options Remember : loans are just one of several small-business fund options. Don ’ metric ton forget to consider other types of financing, like grants, crowdfunding, and investors.
Step 2: Figure out how much you need
Small-business loans come in lots of sizes—from hundreds of dollars to millions—so you ’ ll need to decide just what size you need. And despite what you might think, the answer is not “ as much money as I can possibly get. ”
It might sound obvious, but you ’ ll have to repay whatever you borrow. And a larger loanword will likely mean bigger payments, which can hurt your cash flow. Plus, most lenders calculate interest and other fees as a share of your lend sum. A bad loan will come with higher fees. so if you borrow money you don ’ t need, you ’ ll end up paying for that excess sum .
At the same clock time, you should make indisputable you don ’ t get a too-small loanword. The last thing you want is to come up short-circuit on cash in the middle of a renovation undertaking, for model .
Getting the wrong size loanword is one of the most common mistakes business owners make when applying for fund. so test to find the right balance : large enough to cover your expenses, but small enough to stay accomplishable .
Pro tap many lenders take initiation fees and other up-front fees out of your initial loan measure. therefore if you actually need $ 50,000, for example, you might want to get a slightly larger loan—say $ 55,000—to explanation for the monetary value of those fees.
Step 3: Take an honest look at your creditworthiness
By this point, you should have a harsh idea of what kind of lend you want, but now you need to get real about what kind of lend you can actually get. Just because you want a $ 500,000 term loanword doesn ’ deoxythymidine monophosphate mean a lender wants to give you one, after all. You ’ ll have to meet certain occupation loanword requirements .
Lenders will consider many factors as they evaluate your creditworthiness. For model, they might ask questions like these :
- What’s your personal credit score?
- How’s your business credit?
- What’s your annual revenue?
- How long have you been in business?
- Have you ever declared bankruptcy?
A traditional lender will likely want a reasonably specific set of answers to these questions ( think : 780 ; perfect ; $ 200,000 ; five years ; and no ), whereas alternative lenders will have vary requirements .
similarly, your creditworthiness will affect what kind of loan you get from a lender. While many lenders would hesitate to give a five-year loan to clientele owners with bad credit and a history of bankruptcies, for exercise, they might be more uncoerced to extend a merchant cash advance .
Step 4: Explore your lending options
immediately that you know what you need from a lend and what kinds of lenders you might qualify for, you can start looking specifically at lenders and their loan offerings .
therefore if you know you want invoice financing, you can start comparing lenders who offer that. Or if you know you have good enough credit to qualify for a traditional fiscal institution, you can begin comparing bank lend options .
As you compare, look at winder small-business lend features like minimum and maximum loanword amounts, terms, fees, and APRs .
In many cases, you won ’ deoxythymidine monophosphate find one “ best ” loan—one might have a higher april but besides a better term, while another might have a lower APR but higher up-front fees—so you ’ ll have to decide what ’ s most important in your position. Do you need moo monthly payments ? A boastfully lend sum ? A long term ? That ’ s up to you to decide .
Step 5: Decide and apply
once you prioritize your needs, you can decide on a lender and a loan. then all that ’ sulfur left is to submit a lend application. Make certain you gather any relevant documents ( such as tax returns, bank statements, articles of administration, etc. ) to speed up the process.
If you get accepted, then it ’ second prison term to use your newfound fund to build your business. Congratulations !
If you get denied, don ’ t give up ; there ’ south enough of fish in the sea. Or in this case, plenty of loans in the earth. You can always apply somewhere else or choose a unlike type of loanword .