Running a business can be an outstanding experience. Providing goods and services that improve the lives of customers and clients is a rewarding feeling and the chance to grow and expand is always a plus as well. The truth, of course, is that all of this takes money and there’s not always enough. The solution to this is to consider a business loan. There are a number of ways for businesses to secure great loans that can enable them to scale and grow their business.
What Are Business Loans?
Business loans can be a sure-fire way to get the money you need to grow and cover your company’s needs so your business can reach its full potential. Business loans are loans specifically granted to a business in order to give them funding. There are certain tried-and-true rules about what to do when you are a business considering taking out a loan.¹
Rule 1: Know Why You Want It
Before taking out a loan, business owners should know exactly what they want the loan for and how they will use it. Does your business need a loan to cover debts while you build up your sales or does it need a loan to pay employee salaries while you open a new location? Be sure about the best case and worst case scenario of when the loan will be repaid. Lenders will be impressed and offer you a better loan—and potentially better terms—if they can see that you have thought it out well and that your business has a realistic and probable plan for the future.²
Rule 2: What Kind Of Loan Do You Want?
Knowing what kind of loan you want is crucial. Do you want to go to a bank, get a loan via tapping into home equity, or find a private lender that can offer you terms more to your liking? Banks can be more difficult to get loans from as some have pulled back on offering as many—or as large—loans since the 2008 recession, so it all depends where you look and what kind of loan you are willing to sign your business up for.
Interest rates—fixed or variable—are very important to pay attention to, as well as how long you have to pay it back. Fixed rate loans stay at a certain rate of interest within the time you have to pay it back. Variable rate loans have interest rates that change for a number of reasons including changes in the wider financial market.³
Rule 3: Quick And Risky Or Long And Lower?
The main choice you will have to make when taking out a loan is whether to opt for a loan that requires relatively quick repayment and has a high interest rate or a loan that allows you longer to pay it back and charges lower interest rates, but doesn’t offer access to as much capital.⁴ Whether you need a Small Business Administration loan, a construction loan, a personal business loan or any other variety, it is worth shopping around and seeing what different banks, credit unions, private lenders and equity lines can offer. There is a full range of options so it all depends on what you need.
The Bottom Line
Business loans can provide significant help to a business that is trying to grow and as long as you have a decent credit score and a solid business plan they will not be hard to obtain. Having a business loan gives you cash flow and protection from unexpected circumstances but it also means that in many cases the business itself is responsible for repayment rather than the business owner, providing some shielding from direct liability as opposed to a personal loan.⁵