How to Get a Loan to Start A Business: Everything You Need to Know

Entrepreneurs need plenty of capital to start their ventures. Sourcing funding can either come from seeking angel investors and venture capitalists or applying for loans. While there are several benefits to finding investors, most businesses typically start with a business loan. 

Business loans are one of the most common financing options available to budding business owners. Many lenders in the country are willing to help founders start their ventures. But, just like any other major business decision, there are plenty of important factors to consider before applying for a business loan.

To help you kickstart your dream business, we’ll explore how a business loan works, how you can get one for your LLC, and the crucial factors you need to consider once you apply for one.

How Do Business Loans Work?

Business loans provide entrepreneurs with financial help by providing them with a lump-sum payment or a credit line. In exchange, businesses agree to repay the money they’ve borrowed over time, along with accumulated interest and other processing fees. Lenders may require weekly or monthly payments until the loan is fully repaid, depending on the terms and agreement of both parties.

Business loans can either be secured or unsecured. Secured business loans require collateral to secure the loan. Some of the most common collaterals include real estate, equipment, cash, or investments. 

Meanwhile, unsecured loans do not require any sort of collateral. Instead, they ask business owners to sign a personal guarantee agreeing to accept personal liability if their venture cannot repay its debt as agreed.

Traditionally, business loans are granted to operating ventures that have demonstrated excellent profitability and are looking for additional funding to grow their business. But over the years, other funding options for startups have emerged, like personal loans and crowdfunding. 

How to Get A Loan to Start A Business

If your LLC is fairly new, getting a loan or line credit may be difficult, but the following steps will help you have a higher chance of getting your loan approved. 

Create Your Business Plan

Traditional loans offered by private lenders will only process applications with a detailed business plan. Consider your business plan as your venture’s road map for the future. It should showcase how much capital it needs to grow and be successful. Without one, prospective lenders cannot evaluate the risk and whether your idea is profitable. 

It’s possible to find lenders that don’t require business plans, but they come with a few disadvantages. For instance, lenders that don’t ask for business plans will only offer short-term lending programs with higher annual percentage rates (APRs), which often results in higher repayments.

But regardless of whether you want to work with a traditional or an online lender, we recommend creating a business plan so that you have an accurate estimate of how much funding you need. 

Calculate How Much You Need

Finding out how much capital your business needs means determining your loan intent. According to the Federal Reserve Bank of New York, there are three main reasons why American entrepreneurs apply for loans: business expansion, operating expenses, and loan refinancing. 

Beyond initial investments, there are other important costs that you need to include in your estimated capital. There are a handful of other factors that you should consider when calculating the amount of money you will need to run your business successfully. 

For example, your small construction company has consistently grown in the past year, and you now need a proper office for your small team. Aside from new hardware, you should also consider the maintenance and utility costs of this new space.

Examine Repayment Terms

Once you know how much money you need to borrow, you’ll then need to consider how you’ll repay your lenders. We recommend setting realistic standards about the amount of repayment you can give each month. It’s vital you keep external factors in mind, like interruptions in your supply chain, seasonal downtimes, and the like. 

Lenders will typically determine your monthly repayments based on factors like the type of loan you’ve applied for, business profitability, the income of business owners, and your credit history.

Small business lenders like the Small Business Administration (SBA) understand that the needs of startups vary from one another, which is why they offer a wide variety of loan plans with different repayment periods.

Talk to A Credit Expert

Credit experts will give you insight into the different loan programs and financial institutions available in your local area. They can also provide personalized advice on which financing option fits your business needs and the criteria lenders use when processing loan applications.

Additionally, they can help you build an excellent business credit profile to secure your loan. 

A business credit profile ensures that your personal assets are protected from any losses or liabilities your venture may face. Your business stays prepared for future lending needs by having a separate credit score.

Whenever you use your credit to fund your business, your assets become at risk of liabilities. While it’s still possible to build a credit score specifically for your venture, it still puts you personally responsible for any debt incurred. Hence, it’s best you incorporate your enterprise before proceeding with its credit profile.

Secure Your Business Loan with Ease

During uncertain times, securing financial support can go a long way. Still, applying for a business loan remains a major financial decision that should not be taken lightly. We recommend considering all of your funding options before proceeding with your application.

If you’re unsure of the kind of loan program that fits your business needs, we recommend speaking to credit experts. Firms like NCH take pride in helping their customers build excellent business credit profiles and get the capital they need to grow their enterprises. 

Not only will our team help you explore the different loan programs you can apply for, but we’ll also ensure your venture gains access to more funding by providing a separate and commendable credit profile. 

Our credit experts will help you get the right funding that matches the needs of your venture and your credit history. With the help of NCH, you’ll be able to save more resources and secure funding for your growing business in no time. 

For more information on how to get a loan to start a business and build a business credit profile, you can check out our blog for more in-depth articles on starting a business and other related topics.