After exploring several Guilford mortgage rates, you settled for a company that had very reasonable prices. The term was for six years for your 300 square feet apartment. It’s now fully paid, and you’re hoping that after completing your payment with no surcharges, penalties, or delay in payments, your credit rating will be in good standing. The next plan is to get another loan for the small business that you will put up.
A significant majority of small startups in America, around 73% (2016) in fact, do not have full financing. And yes, your credit standing will matter when you do visit a bank and try to take out a business loan.
Double Checking Your Resources
There might be two schools of thought as far as raising capital is concerned. One that says, “get a loan to fund the majority of your project.” The other is “get as little as possible” and raise as much equity as you can. Many experts will advise that you go for the latter, mainly if your business venture will not require significant investments, like in manufacturing or real estate development.
You will, however, need to make sacrifices (e.g., digging into your savings) and be creative in sourcing your equity funds, like asking funds from friends and family at zero or low interest. The idea is to gain flexibility in your cash flow when you have a lower amortization on your business loan.
So as you determine the cost of starting your business, see how much of your own money you can raise before asking lenders for a loan.
Understanding the Process and What You Need
The lender assumes more significant risks when it comes to business loans. As such, more scrutiny of the requirements is necessary, and the application process is longer.
- Stricter examination. If the completion of your housing loan raises your credit rating points to 650, then you are in good shape. Some lenders require that you be in business for a few years already before qualifying for a loan. But others will lend to start-up businesses too. You need to thoroughly prepare all the required documents, from your business plan to your bank statements, insurance, and equity statements, among others. Make sure that you get a complete list of documentation requirements.
- Not all business loans are the same. Having a clear understanding of the different types of business loans is necessary. Examples include a small business line of credit, working capital loans, accounts receivable financing, or small business term loans. The first example is a way of getting funds as the need arises and usually comes with a cap. The last example might be more suited for your startup as the funds for this type of loans is a fixed amount, which you can earmark for your operations and capital expenditures.
- Due diligence on lenders. Do your research and vetting of the lenders that you will approach. There are online lenders, commercial banks, community banks, or peer-to-peer lending. One of the main differences amongst these lenders is the speed by which they decide on your application. The big banks, of course, take longer while the peer-to-peer might be quicker.
Today, entrepreneurs have more options in terms of lenders. There might be a few hurdles, especially in preparing your documentation. But once you get those right and you have a sound business and financial plans, you should be able to fund your project.