Business loans provide a lifeline to companies of all sizes. They can aid them cope with seasonal fluctuations in revenue or unexpected expenses. They can also be used to finance new equipment, inventory or even a new location. It is important to make use of the funds wisely to grow your company without relying on debt financing.
Determine how much capital you require for your business and what kind of loan will be the most effective to meet your needs before you submit your application. You should also know the amount of time you’ll need to repay the loan, since this will affect your charges and interest rates. Many lenders offer one-time funding or a line of credit with terms for repayment ranging from a few weeks to several years.
You’ll be required to provide a number of documents, such as your business plan, financial statements and credit history. They may also require collateral, like a real estate, equipment or cash due to your company (accounts payable). Some lenders will waive these requirements for existing customers, those with excellent credit and seeking large amounts capital.
The lender will also consider whether your business has the capacity to repay the loan using indicators such as its fixed-charge coverage ratio as well as the amount of cash it is likely to generate every month. They will also determine if it has any outstanding debts and assess its compliance with all legal requirements. Finally, they will analyze your industry to see if it is considered volatile or in an area that is stable.