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Getting a business loan can be very daunting. You might start your research from dozens of banks and other alternative lenders who may be competing for your and likewise others attention. Even if you are successful in narrowing down your options you might get confused as this may be your first loan and you do not know where to start from. We have tried to make the process easier for you. Below are five steps explained properly for you to understand and make your process of business loan easy?
Determine why you need a business loan
The first question that the bank or the lender is going to ask you
is for what purpose you need the loan. Business owners may need the working
capital for an array of purposes and others may need for specific purpose like
to buy certain piece of equipment. Take your time and decide what kind of
financing you need as the need will drive you to lender and loan type.
Following are the general reasons for loan like:
Starting a business
Buying a business
Day to day working capital
Cover cash flow gap
Growth of the business
Calculating financing that you can afford
The amount of capital for achieving your business need might not
match up with what you can afford. If you take too much fund you can be caught
in a pile of debt. And if you go for less fund you may be missing the
Before signing the loan agreement the business calculator will
easily tell you monthly payment of your loan. For calculation all you need is
the loan interest rate and term. You can even do testing with the amount and
see how your monthly payment can change based on the size of the loan. You can
even estimate that if the incoming revenue will be able to cover the monthly
payment or you may have to reduce little of your loan amount. You should easily
be able to cover all your business expenses along with the loan amount
You can use the Debt service coverage ratio (DSCR) to see whether
you can afford certain amount of loan. Ideally speaking if DSCR is above 1 it
means you have cash on hand to cover the loan payment. If your DSCR is below 1
you need to increase your business income or decrease the monthly expenses.
Browse different types of business loans
Your next step should be figuring out which business loan will
suit you. The main purpose is to know which type of loan match the credit
profile, your budget and the reason you need the funds.
Your option could be:
Short term loan
Business lines of credit
Merchant cash advances
Gather your loan application documents
Almost all type of loans comes with some paperwork requirements
during the application process. It is generally not easy to qualify for the
loan. Bank requires lots of documents because they closely inspect borrower and
approve all who are most qualified. Lots of there is at stake and hence they
want to verify all your business as well as personal information approving all
the details you submit.