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How To Get A New Business Loan – Your success can change every month, you can experience peaks and troughs in your income, not to mention the ever-changing market and new competitors at every turn. With all the changes in the economy, you don’t have to worry about money.
Small business loans can help owners maintain financial stability in their businesses. Our team is here to help explain the process and make sure you understand exactly how business loans can help you.
How To Get A New Business Loan
A small business loan is a type of financing offered to business owners for a variety of reasons.
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The purpose of a small business loan is based on the needs of the business. These loans help business owners get capital upfront to invest in the business. This may include improving short-term income, making appropriate repairs, offering wages, purchasing new equipment, and more.
Small business loans can help cover working capital during high and low market conditions. Moreover, these loans can help expand the business and earn more money.
Business owners can use loans to strengthen their financial stability and maintain a financial “safety net” if a bad economy hits the business.
Secured business loans are tied to business assets that act as liabilities if the borrower (business owner) is unable to meet their repayment obligations. Many borrowers will use cars, high-tech equipment or real estate as collateral.
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Secured loans can be more money at lower interest rates because they are less risky. If the borrower is unable to repay the loan, the borrower will take ownership of the related property. For example, if you get a secured loan to buy a company truck and you can’t make the monthly payments, the lender will repossess the vehicle as repayment.
These loans are a good option for large purchases. A type of secured business loan is a mortgage where the property or building serves as collateral for the loan.
Unsecured business loans are not tied to any assets. These loans can be more difficult to settle because the borrower has no assets or “safety net” if the borrower is unable to meet their repayment obligations.
These loans are usually smaller and may have higher interest rates because they carry more risk.
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An unsecured loan is a great option for small and affordable payments. These loans can help new business owners who are just starting to generate some valuable cash to start their business.
Short-term loans are not tied to any assets and are intended to help borrowers (business owners) in times of weakness.
These loans provide quick cash in a very short period of time. For example, a lender may need to pay their employees at the end of the month, but they are still waiting for payment from customers. A short-term loan can help “drive” the business until more money is available.
Before applying for a business loan, you need to know how to get a loan. You can use the loan calculator to determine the required amount.
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Let’s say you run a business from home and need an office and other staff to manage clients.
The average rental price for office space in Calgary is $17 per square foot. If you rent a smaller office space, you will need about 80 to 150 square meters per employee. Therefore, the cost of renting a business for myself and another accountant will be at least $2,720 * per month.
You will also need to pay your first employee a monthly salary. The average salary for an accountant in Calgary is $77,317 per year. So you need $6,443 each month for their salary, not including benefits or CPP and EI contributions.
Finally, you need to consider the costs of office supplies, utilities and insurance. These costs may vary depending on your provider, but let’s assume you budget $15,000 to cover the first 3 months of utilities and upfront purchases.
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Taking all these costs into account and wanting to have enough money for 3 months of work, you need to apply for a loan of (at least) $43,000**. However, as costs can vary, it is generally advisable to ask for more than you need for a pillow. So, in our example, your lender will want you to apply for $50,000.
Most private lenders require a business plan to process small business applications. If you already have a business plan, you’re ahead of the game. However, it is a good idea to review and update your business plan before applying for a loan.
Online loans are becoming increasingly popular, many of which do not require a business plan in the initial application process. However, this may result in higher interest rates depending on how risky the lender is for your loan.
A good business plan clearly describes your company’s plans for the future and helps lenders assess the economic viability of your business. No matter what you are applying for a loan for, a business plan can improve your chances of approval and will help you make clear progress in developing your business.
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You will consider the term of the loan (how long you have to repay the loan), the interest rate (the amount of the loan) and your monthly payments.
Small business lenders recognize that every business is unique, so most borrowers have a variety of loan options to meet the specific needs of each borrower. When considering repayment terms, keep a few things in mind:
Your credit history is a record of all the credit items you have (loans, credit cards, loans, phone bills, etc.). This statement shows how responsible you are for repaying that debt.
Credit scores range from 300 to 900. In general, a score of 660 or higher is considered “good credit.”
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If you have good credit, you will be able to secure financing with low interest rates. A credit score of 760 or higher is considered “good credit.”
If you have bad credit, you are less likely to have financial security. If you are approved for a loan, your monthly payments and interest rates will likely be higher. A credit score of 560 or less is considered “bad credit.”
Applying for small business loans can be difficult and as it can be a major credit check, we recommend that you seek a business advisor first. Once you have completed most, if not all, of these steps, you should schedule an appointment with a business advisor.
Your adviser can help you with your loan application, answer any questions and address any concerns you may have. They are experts and they are there to help you.
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Don’t be afraid to ask “stupid questions”. These advisors are here to help you understand the process and best prepare for this new responsibility. You need to fully understand your commitment before proceeding, so take your time and ask as many questions as possible.
Every company and lender is different, so it’s a good idea to discuss the type of loan with your adviser.
Now that your preparations are complete, it’s time to apply for a loan. You must:
Depending on your lender, they may request more information. They will give you a clear list before you sign up to make sure you have provided the correct information.
What To Know Before Applying For A Small Business Loan
A small business loan is not the same as a business line of credit. A loan is a fixed obligation. A line of credit is an open liability.
For example, if you are approved for a $50,000 business loan, you will receive a $50,000 down payment up front. This is a one-time payment that you agree to pay back over time.
If you are approved for a $50,000 line of credit, you will receive an open credit for that amount. You can withdraw and fund this line of credit at any time. You will only be charged interest on any outstanding balance within 21-30 days.
A line of credit is a great option for businesses looking for a more flexible loan option.
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We are lenders in Alberta and British Columbia. We can advise you on loans in Edmonton, loans in Calgary and loans in Vancouver.
Contact us today to learn more about how we can help you (and your business) grow and thrive!
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