The purpose of small business loans is to provide temporary assistance on financial matters, usually with the aim of increasing cash flow, covering operational expenses or for purchasing specific items, such as equipment that will benefit the business or investment to help the business grow.
As a popular way of keeping a company’s operations and costs afloat, small business loans offer a relatively quick boost and are readily available to those companies that qualify. Here at Bright Loans, you can compare small business loans form a wide range of market-leading providers.
Arranging a small business loan is not always an easy or straightforward option. There are a number of factors that need to be taken into consideration before applying. It is worth addressing these areas as this can save considerable time and wasted effort as you progress through the identification and application process.
Small business loans comparison takes less time when you use our advanced technology. There are numerous lenders and you should always verify the credentials of any lender you may be considering. The lowest interest rates do not always indicate that the lender will automatically approve a loan; conversely, higher rates do not mean that they are unapproachable.
The following are some of the key considerations.
Credit history – lenders will generally review your credit report in order to establish the creditability of the company. It is widely accepted that 700 is the baseline score; anything below that and the options are likely to become rather more limited and may attract higher interest rates to reflect the increased risk. A company’s financial history can sometimes be improved over a relatively short period. Additionally, if your firm has been rejected in the past, it may be wise not to re-apply too often as this may be a negative factor in credit scoring.
Planning – lenders routinely expect to see a solid and strong business plan before accepting an application in order to see that the money will be going to good use and isn’t merely destined to become an additional debt. Lenders will also require access to financial records such as bank statements, tax filings, company balance sheet and any relevant legal papers. You should have this paperwork ready in advance or, at the very least, to hand so that the application can progress more quickly. Mistakes and omitted items could end in the application being rejected.
It is important to thoroughly explore the range of lenders offering small business loans and compare the different rates and deals available. It may be helpful to start with any lenders that are strongly connected to your firm’s industry and perhaps even those that are more local than others. This may prove to be a positive factor with ever-growing interest in localisation and local lenders are more likely to be invested in their local economy.
Having decided how to proceed, you now need to consider how much and what type of loan is appropriate. The working capital ratio, which is current assets divided by current liabilities, can help you figure out the appropriate loan value required to cover your financial needs. After that, the type of loan required should be considered. There are a number of different types:
Short-term loans – these are usually to cover a short-term cash flow issue and are often required to be paid back within a year. The amount borrowed will not be particularly high.
Long-term loans – these loans tend to be for a higher amount that can be repaid over a number of years. They are often used to establish a business and help it grow.
Secured loans – such loans require collateral to come from the borrower, which tends to make them easier to obtain. They often have lower interest rates than unsecured loans
Unsecured loans – lenders for these types of loans do not require collateral so, as this makes the loan more of a risk for the lender, the interest rates will often be higher. The borrower must have a good credit history.
The main advantage of small business loans is that the lender, whether a bank or a specialist commercial lender, will not have any input to how the business is operated and handled. Although a lender is likely to want to see a business plan before considering a loan to the company, this is only to evaluate the likelihood of success and the ability of the company to pay the money back. Smaller, private lenders, are usually able to provide the financial assistance in a short amount of time while more traditional lenders, such as banks, will take longer to provide the funds.
Lenders are usually going to want to know that a company is capable of paying back the loan so it is up to the company to prove that this is the case. This can be difficult in particular for first time applications and those who are just starting their businesses. Loan financing has a high level of expectation so a new company will face far greater scrutiny. You should be fully prepared to explain all aspects of the plan.
Many companies may be concerned that their current debt status may affect their small loan application. Fortunately, most lenders do not require borrowers to be completely debt-free. It is likely that most small companies will generate some debt, particularly when starting out. A lender will consider the cyclical cash flow of a company if, for example, you are a manufacturer with higher value in assets but cash flow which depends upon cyclical or seasonal sales and therefore require a short-term loan to cover some out of season costs.
If you have worked out your working capital ratio or debt-to-equity ratio, you will be keenly aware as to how much money you need to borrow which, in turn, guides you when making small business loan comparisons.
Why not start your small business loan comparison here at Bright Loans today?