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Business Loans can be the lifeblood of a business, and getting a business loan can often mean success or failure for any financial enterprise.
However, as any business owner knows, getting a business loan is not always easy. As such, here is an overview of business loans, as well as critical factors that determine if a loan application will get approval.
What is a business loan?
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A business loan is a type of loan that you use for your business. The possibilities of business loans are virtually endless: They can be used for business acquisition, marketing, equipment purchasing, working capital, and more.
There are many sources of these loans, and the United States Small Business Administration is often involved in guaranteeing these loans, thus ensuring that they are more widely available to the public.
Types of business loans
As noted by Lantern by SoFi, “There are numerous types of business loans, many of which are well-suited to people wanting to acquire a business.” Business acquisition loans from Lantern by SoFi are one source of these loans. Types of loans include:
- An SBA7(a) Business Acquisition Loan
- A variety of loans offered by online lenders
- Seller financing, which means that the seller will finance their loan and pay you
- Equipment financing, in which another vendor owns the equipment you are purchasing
Five key factors
Five key factors include:
- Business or personal credit: This may be the most important factor, particularly if you are applying for a loan for a new business and don’t have business cash flows or finances to report.
- Equity invested in the business, or vested interest. If you invest more of your money into a business, lenders will see that you have a personal stake in the success or failure of a business. This, in turn, makes them more likely to lend you money.
- Ability to repay: Your finances and financial projections are critical to determining your creditworthiness. After all, no bank wants to lend out any of their money if they do not believe that the borrower will have the ability to repay the loan.
- Working capital, which is defined as your assets minus liabilities. A lender will want to see that you have ample cash reserves and the ability to draw down on other income sources.
- Experience: Your personal experience, managerial experience, and time spent in the business world will matter deeply to most banks, as they will want to know that you know what you are doing before giving you any of their money. Just like you would never hire someone for a job without ample credentials and experience, a bank will not want to lend you money unless you can prove the same.
Business loans are not easy to get, but they are often within reach of most entrepreneurs who show enough hard-working and willingness to succeed. As such, if you work hard enough, it is highly possible that you can obtain the financing necessary to open your own business.
