A small business loan could provide the funds your home business needs to reach the next level. You might even be able to move your business out of your house! But it’s understandable if you feel intimidated by the process of getting a small business loan. It can take a lot of paperwork and a lot of time to get a small business loan approved.
However, it doesn’t always have to. Before you approach a bank or alternative lender, decide how much money you need to borrow – that will help you narrow down which loan products might be best for expanding your home business.
Write your business plan, get your financial and business documents together, and choose the loan product you want to apply for. Consider all of your options when it comes to loan products – the wrong choice could leave you struggling to repay the debt.
Decide How Much You Need to Borrow
Before you can apply for a loan, you need to know how much you’re going to ask for. Lenders want you to have a plan for every penny of the loan money they give you, so it’s not a good idea to go into it thinking you’re just going to get as big of a loan as you can.
You should only borrow what you need, because you are going to have to pay it back, and the less money you borrow, the less you’ll have to repay.
Knowing how much you want to borrow can also help you choose the right business loan product. If you’re looking to borrow a large amount of money – let’s say, $50,000 to $5.5 million – you will probably want to go with a traditional bank loan or a Small Business Administration (SBA) loan like the CDC/504 loan or the 7(a). If you want to borrow less than $50,000, a microloan might be the better option.
Put Together a Business Plan
Lenders will want to see a business plan before they’ll agree to give you any money. A business plan should outline your company’s goals, and would ideally give information on your company’s structure as well as key players in the company.
Being a home business, your company may not have many key players, but it’s still important to lay out your company’s structure and your own qualifications and relevant experience. Make sure you back up your budget and financial projections with actual research.
Get Your Other Paperwork in Order
Applying for small business loans requires a varying amount of paperwork, depending on whether you’re applying for a traditional bank loan, an SBA loan, or an alternative loan product from an online lender. Bank loans and SBA loans require a lot of paperwork, including:
- Your business license and articles of incorporation
- Client contracts and commercial leases
- Your resume, including your relevant management, business, and industry experience
- Business and personal bank statements and income tax records
- An income statement and balance sheet
- Your financial projections
- A copy of your driver’s license
If you’re applying for small business loans online, you may not need to produce quite as much paperwork. However, you’re still going to need to give detailed information about your business finances and why you need the loan.
Consider the Loan Products Available to You
A traditional small business loan might not be the right product for you if you’re trying to grow a home business. Traditional small business loans from banks and from the SBA can be used to buy more equipment, buy real estate, buy inventory, or provide working capital. But you may not be there yet.
For a first small business loan, it might be easiest to open a business credit card. You generally don’t need to have been in business for a long time or need a lot of revenue to qualify for a business credit card.
A business line of credit might also be a good fit, especially if you might need to boost your cash flow on an ongoing basis. You can borrow as much as you need from the line of credit, and keep using it until you reach the credit limit.
Choose a Loan and Apply
Once you’ve chosen the loan you want, it’s time to apply. You might be able to get help with SBA loans from a local non-profit, especially if you’re applying for a product like a disaster loan.
Talk to a few different lenders to get the best interest rate and repayment terms. If you’re going with an online lender, your application process will be very streamlined, and you can get your loan money within a few days, but if you go with a traditional lender, you’re going to need to provide a lot of paperwork and the application may take several weeks to process.
Debt Management Strategies
Debt can be a major obstacle to the success of any small business. Managing debt effectively is an essential part of financial planning and can help businesses stay afloat during tough times. Here are some debt management strategies for small businesses:
Create a budget: A budget is a powerful tool for managing debt. It helps businesses understand their income and expenses, identify areas where they can cut costs, and prioritize their spending.
Prioritize debts: Not all debts are created equal. Businesses should prioritize paying off high-interest debts first, such as credit card balances or loans with variable interest rates.
Negotiate with creditors: If a business is struggling to make payments on time, it may be worth negotiating with creditors to see if they can offer more favorable terms or payment plans.
Consider consolidating debt: Debt consolidation involves taking out a single loan to pay off multiple debts. This can simplify the payment process and may lower overall interest rates.
Seek professional advice: If a business is struggling with debt, it may be worth seeking advice from a financial professional such as an accountant or financial advisor.
Focus on generating revenue: The best way to pay off debt is to generate more revenue. Businesses should focus on increasing sales and finding new sources of income to help them pay down their debts over time.
When your home business is ready to expand, you need a small business loan. Take care to get the right product for your needs, so you can grow your business the right way.