Your business is part of you. It’s something that brings out your pride and accomplishment. When you are looking to expand it may require that you take out a small business loan as your means of financing. If you never had to take out a loan before it can be quite difficult to understand the process.
There are a lot of facts you should know about taking out loans for your business. From choosing the right lenders, the right terms, what is required of you, your business qualifications, and so much more. Today we’re going to take a closer look at these requirements so that you can be better equipped to securing that loan for your business.
There Are Different Loans Depending On What The Money Is For
If you want to get a business loan, you might need to explain to the lender why it is required. Nevertheless, before you explain, you should first learn everything you can about a business loan and the types it can come in. Typically, a loan can fall into two categories, short-term and long-term. Short-term loans are for financing things like accounts receivable, inventory, and accounts payable. These typically last anywhere from 2 to 7 years. Long-term loans are more geared towards financing new equipment, vehicles, and real estate. The length of long-term loans is typically more than 7 years and will greatly depend on the reason for the loan.
Understand Collateral Is Necessary
When it comes to a bank lending a business money they want to ensure they’re going to get paid back. This typically is secured via collateral, assets surrendered to the bank if the loan goes into default. In many cases for short-term loans of vehicles or equipment, the collateral is the new vehicle or equipment.
In long-term loans, such as for real estate, the property is considered the collateral. In some cases, the banking lender may require you as a business owner to put up your personal assets as collateral. This could include your vehicle, house, and savings accounts. It’s important to note that even though a business may be set up as a limited liability, when you take out a loan and agree to put up your personal assets as collateral the bank can indeed seize your personal assets if you default on the loan.
Things You’ll Need to Apply For A Loan
When it comes to applying for a business loan it’s much more complicated than personal loans. A bank will ask for a number of documents. This will take time on your part to collect the requested documents and time on the lender’s part to review them. Business loans take time to establish and requires a lot of patience on the business owner’s behalf. This is why it’s highly recommended that you start the loan process as soon as you decide on expansion, as your plans will be delayed until funding comes through.
Some of the must-have documents for loan applications include:
- Accounts Receivable Detailed List
- Accounts Payable Detailed List
- Financial Statements (balance sheet, profit, and loss statements)
- Financial Details (bank accounts, credit card accounts, investment accounts)
- Personal Finance Details (net worth, credit card accounts, auto loans, mortgages, title loan)
- Insurance Information
- Past Tax Returns
- Business Plan Of What The Funding Is For
- List Of Collateral Assets
These are just some of the basic documents you will be asked to procure during the loan application process. Individual lenders will require additional documents. Your loan adviser will be able to give you a list of the required materials for their specific loan application.
These are just a few of the things you should know about business loans. It’s highly recommended that you do your research on the lending institution before applying for any type of loan.