If you are starting a new business or are thinking of reviving an old one, then you will require a business loan. However, it can be quite difficult to get a business loan which is large enough to finance your entire business operations. As a matter of fact, it may be impossible to get a loan even for a single day. This is because banks offer loans only to those who have a good credit history. But what about those people who have a bad credit score or no credit history?
A business loan can provide a smooth financial solution to all your small business needs. It does not matter how big or small your business is, if you are going to get it financed. Even if your business is just starting up, you can get a loan to expand it. You can get a loan to buy machines or tools to run your business. You can also get funds to purchase raw materials and pay wages to employees.
However, before you apply for a business loan, there are several things that you must consider. First of all, your business plan is the first thing that the bank or any lender will look at. Your plan should include the estimated earnings of the business. It should also show the anticipated cash flow every month. The kind of collateral you put up will also determine the terms and interest rate of the loan. If you can pledge collateral, the interest rate will surely be lower than one without collateral.
There are two types of loans – secured and unsecured. A secured business loan requires the borrower to place his asset – home, land or other assets – as security for the loan amount. This ensures that the loan amount will be recovered even in case the owner leaves the business. The interest rates for this type of loan are relatively higher as compared to an unsecured loan. Ten percent of the value of the asset is taken as collateral.
An unsecured business loan is a good option if the business has not yet become profitable. You can even apply for this loan without placing collateral. However, you will have to pay comparatively high interest. This is because you are considered as a high-risk borrower. Ten percent of the value of the asset is taken as collateral, and the interest rate applicable on this loan is comparatively low.
You can also go for small business loan online. These loans are easy to qualify for. All you need to do is prove that you have a regular source of income and you can repay the loan amount in time. Banks and other financial institutions also offer business loan online. You will have to fax over some supporting documents to prove your credibility as a borrower.
Once you get your business loan, you should start making profits from the day the loan gets approved. This is because a good credit history is important for the lenders. Even if your business fails later on, the previous record of financial irregularity will be cited as the reason for the same. If the lender finds out that your business . . . . . . was insolvent, he might lose his entire investment.
On the other hand, if you make regular payments on the loan, you will also be able to convince the lender to approve the loan amount. Once the approval is obtained, you just have to repay the loan in time. However, you should take care to pay the entire amount without delaying the repayment. Delaying will cost you. Also, don't leave any stone unturned to improve the credit history by making all the monthly payments.