8 Things You Need to Do Before Applying for Small Business Loans
Deciding to take on a small business loan is a huge milestone for your business. Small business loans New Jersey can help you fund your growth, purchase supplies, and inventory, as well as manage cash flow. When choosing the right loan, it’s important to understand how it works and how you can streamline the process.
Related: How to Find the Best Small Business Loan for Your Company
Loan rejections can take a toll on your credit score. If you’re planning to apply for a loan to obtain cash and, at the same time, build credit, you have to make sure that your application will be approved. Even if you’re not looking to apply for a loan at the moment, it’s important to know the process involved in the application. This way, when you finally decide to apply for one in the future, it will be easier for you.
Of course, before you can apply for a loan, you have to prepare the necessary documents and requirements. Here are eight things you need to do before applying for small business loans:
1. Determine the Purpose of Your Loan
The first step in applying for a business loan is to determine why you need a loan. Potential lenders will most likely ask you why you need a loan, so you should be clear in regards to your needs and goals. Some of the more common reasons for applying for a small business loan are:
- Purchasing machinery and equipment
- Managing cash flow
- Financing growth and expansion
2. Have a Specific Amount in Mind
Once you know the purpose of the loan, it will be easier for you to have a ballpoint of how much you want to borrow. Whether you’ll be using the cash to invest in expansion or buy equipment, be sure to specify the amount in the application as this will help speed up the process. However, it usually takes more work on your part if you’re borrowing cash to bridge gaps in cash flow.
Be sure to show supporting documents for the amount you’re planning to borrow. For instance, if you’re buying a company car, you have to show the lenders quotation for the vehicle. The same thing goes with real estate or equipment.
3. Determine How Much You Can Afford to Repay
Assess your business’ current financial situation and calculate how much you can afford to repay every month. You can do so by checking your business’ past financials and doing cash flow forecasts. Keep in mind that the duration of the loan can affect how much you will have to repay every month.
4. Choose Between an Unsecured or Secured Loan
Based on the needs of your business, decide on whether you want to get a secured or an unsecured loan. Each type has its own set of limitations and benefits.
- Collateral is pledged for the loan (business or personal assets)
- Interest rates are lower than unsecured loans
- Lenders can repossess the assets if you default on the loan
- No collateral needed
- Interest rates are higher than secured loans
- More challenging to get approval for an unsecured loan
Related: Secured vs. Unsecured Loans: What’s the Difference?
5. Choose Between Fixed or Variable Interest Rates
Like a majority of business loans, you have the option to choose between fixed or variable interest rates for your loan. Most business owners choose fixed interest rates because it helps them manage cash flow and their finances in general. You can choose variable rates if you’re certain you can repay the loan in the event there is a rate increase.
6. Be Aware of Any Fees or Charges
Make sure to read the fine print and understand the total cost of the loan, including fees or charges. A reputable lender will be clear and upfront about it. Some of the fees may include:
- Ongoing monthly fees
- Application fees
- Exit fees
- Valuation fees for secured loans
- Early repayment fees
Be sure that these fees will also be shown in the contract. If it doesn’t ask the lender if they can include it before you affix your signature.
7. Prepare the Necessary Documents
Preparing all the necessary business documents beforehand can help expedite the application process. The documents needed may vary depending on the lender, but generally, you should prepare and have on hand the following:
- Business financial statements
- Business license or certificate
- Personal background and financial statement
- Income tax returns
- Loan application history
- Business lease
8. Talk to a Lending Expert on Small Business Loans New Jersey
You’re now ready to talk to a lending expert to discuss the details of your small business loan. Securing small business loans New Jersey is a big financial decision. So, be sure to talk to your most trusted financial expert. They can provide insight into business loans and help you assess what your business needs. From there, they can then determine what business loan will best suit you.