Are You Considering a Business Loan?

07/12/2015 by Edirex

If you have been in business for a few years, it’s sometimes a difficult decision to take on a business loan. You may be thinking that you’re used to going it alone, that you don’t like taking on debt. The thing is, much larger companies than yours regularly use ‘other people’s money’ to make sure they are always in a position to take advantage of opportunities, while maintaining a good cash flow on their books.

The most common reason for obtaining a business loan would be for expansion - opening new locations or increasing the scope of existing operations. This is also the easiest and fastest loan to secure, because the lenders see that their money will be following the same recipe for success.

Business loans are also typically used to renovate or improve your premises, invest in needed equipment, give your working capital a boost, or to add inventory to meet incoming orders. As long as your enterprise is making money, has built up a good history of timely vendor payments, and has its books in order - chances are, you’re in good position to borrow money to assist with your business plans.

Start Up Loans

While new owners are much more anxious to secure a loan, this category of loan is the hardest to get approved. The startup company looking for financial support for the ‘next big thing’ is going to have an uphill battle. Same goes for applying for a loan to buy an existing business.  

Your best chance is to show a clear understanding of the industry you are entering, as well as financial commitment (skin in the game) and good business sense. Be prepared to offer a detailed market analysis, with projections of revenues and expenses. Having partners or managers with industry experience and education will be helpful in convincing the lender of your potential for success. Be prepared to collateralize your home, as it may be required.


Business Loan Types


Though not to be considered an all-inclusive list, the most common types of loans a business owner might apply for would be amongst the following:

Term loan - general purpose loan, repaid monthly over the lifespan of the assets you’re buying; typically used for larger amounts.

Short term loan - best for inventory buildup or quick returns on investments; repaid in a lump sum at the end of terms of up to 1 year; usually for smaller amounts.

Equipment financing - easier to secure as the purchases are collateralized; can be used for very large amounts.

Lines of credit - general purpose, mainly to ensure against cash flow problems; flexible amounts but with limits as to how much you can take at one time; higher interest.

Credit card advances - based upon your customer credit card transactions

Factoring - loan based upon your receivables; you sell your invoices to a 3rd party; good for companies with slow paying customer base, but good business growth and active accounts.