Obtaining business loans can be easy as long as you know how. The finances you receive can enable you to get through a slow period or take advantage of an exciting new opportunity. Either way, you must have the funds necessary, and business loans can help. Knowing how business loans work will enable you speak professionally with lenders and ask the right questions so you can get a good deal.Basics of Business Loans
Business loans are different than consumer loans. They have a different application process, different options, different terms and are given out by commercial lenders rather than consumer lenders. Despite those differences, a loan is still a loan, and once you learn about what makes business loans different, you won't have any trouble getting the money you need.
Where you get Business Loans:
While you can get business loans from many sources such as friends, relatives, private foundations and insurance companies, the majority are given out by commercial banks and credit unions ("Financing Basics"). Whether your business is small or large, commercial banks and credit unions have many loan options available to fit your business' needs. Because there are so many lenders, you should shop around and compare offers to make sure you are getting the best deal.Types of Business Loans:
There are as many different types of loans as there are businesses that need loans. That is because, unlike most personal loans, the lender creates each business loan to fit a business' needs. However, there are some common elements that are helpful to know about. The most important common element is the term length of the loans, which is how much time you have to pay back the loan. Loans can be short, intermediate or long term. Usually, the more money you need, the longer your term will be ("Applying for Business Credit"). Short-term loans are usually due within a year and provide small amounts of money used to cover temporary drops in cash flow. Long-term loans, on the other hand, are usually due within three to seven years and provide enough money to cover major expenses ("Applying for Business Credit"). Intermediate loans are due somewhere between one and three years. When you search for business loans, be sure to ask each lender you talk to about the different types of loans they offer.The Importance of Collateral:
Because most business loans are for large amounts of money, lenders almost always require some form of collateral ("Applying for a Loan"). Collateral is an asset or assets that you pledge as a guarantee that you'll pay back the loan. If you don't pay back the loan, the lender can take the assets you pledged as collateral ("BBBTips on Business Credit"). The most common type of collateral is usually real estate, such as your house, office space, factory and other assets. If you can't provide sufficient collateral, a lender won't give you a loan. So, make sure you can prove to a lender that you have sufficient collateral, and make sure you don't default on you loan and loose your valuable assets.How to Apply for Business Loans:
Applying for business loans requires more preparation than applying for personal loans. You are required to create a loan proposal and make a loan presentation to the lender you wish to use. A loan proposal is a formal document that details everything about yourself, your business and the money you need ("Applying for a Loan"). You'll have to detail all financial information, revenue projections, business plans, credit history and much more. Basically, you'll have to sell yourself and your business in a way that convinces the lender that you will be able to pay back the loan.
If you prepare properly and spend the time finding a good lender, you'll get the right business loan to help your business flourish. If you need more information about business loans, you can read our article about how to apply for business loans