Business loans can be a lifeline for companies of all sizes, helping them to cope with seasonal fluctuations in sales or unexpected expenses. They can also be used to invest in new inventory, equipment or to relocate your business. The key is to use the funds wisely so that you can increase the size of your business and not rely on financing through debt in the future.
Determine how much capital you need to run your business, and which kind of loan is most suitable to meet that need before you submit your application. It is important to be aware of the time frame you will need to repay the loan as this can impact the interest rate and fees. A lot of lenders offer one-time financing or a line of credit with repayment terms ranging from just a few weeks to several years.
Most lenders will require you to submit a range of documents, such as your business plan as well as financial statements and credit history. They may also require collateral, like equipment, real estate or cash owed to your business (accounts payable). Some lenders waive the requirements for existing customers, those with excellent credit, and those looking for large capital.
Lenders will also evaluate whether your company is able to repay the loan, using metrics like its fixed-charge coverage ratio and the amount of cash it will generate each month. They will determine if the company has any outstanding debts as well as assess its compliance with all legal requirements. Then, they will examine your industry to see if it is classified as volatile or is a stable industry.
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