Navigating the Complexities of Business Loans

The right financing is key to being in business. You must look at all possible financing types and find lenders who offer loans that best fit your operation’s needs.

In evaluating you, lenders will particularly consider several sets of data – your credit scores and reports, invoicing and cash-flow projections – so make sure your financial documents are in shape and up to date to maximise your chances of approval.

Determine Your Needs

A business loan is used to cover the costs of running, maintaining and growing an enterprise – this may encompass inventory, equipment, working capital needs, real estate costs and more.

Lender requirements vary by type of business loan but, generally speaking, most will want an owner’s personal guarantee as well as looking at your company’s credit history and debt ratios. They will also want to look at any current debt that you have outstanding, and whether there’s enough play within your debt-to-income (DTI) ratio or debt service coverage ratio (DSCR) ratio to accommodate additional funding.

Other unsecured financing options for businesses might include personal lines of credit, commercial credit cards or merchant cash advances – other ways of getting money more quickly with much lower standards than a loan.

Research Lenders

You will find dozens of options when it comes to business loan lenders, each with their own options and application process. Take note of lenders offering low terms or rates and loan calculators that you can use to estimate payback amounts and the total cost of any given loan offer.

What may be evaluated as part of a business loan application includes a company’s credit score(s) and number of years the company has been keeping the credit score, as well as bank and financial statements. Lenders will often ask for tax returns that show annual revenue for a given time period. For many loans, lenders will want to know the percentage of ownership in the company each owner has, in addition to personal credit scores and debt-to-income ratio, as there may be minimum credit score requirements for certain banks/lenders, and some underwriters may be required to take into consideration a specific risk factor when determining who qualifies for a loan.

Get Accurate Estimates

For a loan, the lender will want to know how much you are borrowing, for what purpose and a vague business plan. It also may want to see your expenses, income tax returns, sometimes for both your business and you personally, copies of your financial records, and most importantly, a debt service coverage ratio (DSCR), which looks at your annual operating income versus annual debt payments.

But minimum credit requirements vary depending both on your lender and the type of loan. Perhaps your lender will require that the loan be secured by real estate or other equipment; maybe it will be secured by the profits that arise from your business.

But despite these ground-breaking changes in banking, lending money to ambitious business owners is still primarily a case of scale and speed. NBC can show you the different types of business loans available, including term, lines and real estate financing, in addition to explaining underwriting, funding and annual loan maintenance.

Get a Plan in Place

Whether you’re looking for a term loan or a line of credit, equipment financing or lease financing, it can be extremely advantageous to become an expert on what each source of financing provides (and what it doesn’t provide) and what the advantages and disadvantages are for each source.

Take how interest rates affect economic life: rising rates make debt financing less attractive to SMEs.

Just review the application to identify which lender had asked for which elements of your credit scores, personal and business, to see which areas could have resulted in a denial and work to improve them before the next application.

Look at Your Updated Monthly Cash Flow

Negotiating business loan terms means that lenders will want to know about the financial situation, cash-flow and long-term plans of your company in light of any identified financing needs.

Banks often open up more flexible repayment terms to ease the cash flow pressures of loan-stressed companies, including lengthening maturities, debt service holidays and debt repairs.

Nothing succeeds like opportunity, and access to proper capital is complementary – if you know what creditors want, then you can use it to help you make choices when negotiating a loan. Dark Horse Financial can help you navigate every step of the process.

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