When you start a small business, you’ll need money. For most, the obvious solution is to go to the bank to get a loan. This is a fairly reasonable train of thought, especially as banks are the primary providers of loans to small businesses. It’s not always very easy to get a loan from the bank, but it’s definitely worth the effort.
What You Need to Know About Bank Loans
The good news is that banks are incredibly stable lenders. The bad news, though, is that banks want to lend to people who are [url= https://www.sba.gov/blogs/business-loans-what-lenders-look-and-tips-winning-them-over]just as stable[/url]. Most bank loans are tailored not to new start-ups, but to businesses that have assets and profits on which they can trade. Of course, you can get a bank loan even if you don’t have a business – but you will definitely need a good credit score. It’s more understandable when you understand the amounts of money that are being loaned out, though – bank loans typically have a floor of over two hundred thousand dollars, and the sky is pretty much the limit. You’ll typically have to put a down payment down of around twenty percent to get the loans, and you will be expected to pay back the loan in seven to ten years at an interest rate that could be as high as ten percent. Obviously, this is not a type of loan for someone with a shaky financial history.
The Pros and Cons of Bank Loans
While businesses definitely want access to bank loans, this doesn’t mean that they are perfect. There are definite pros to getting money from the bank, but there are also some very real downsides to this kind of lending.
The pros are fairly easy to establish. Even higher-interest loans from the bank tend to be at a lower interest rate than what you’ll get from other kinds of lenders, and the longer repayment rate helps to make sure that it’s easier to repay the loan on your terms. These loans also bring with them the ability to borrow fairly substantial sums of money, helping you to secure capital early in the lifetime of your business.
This said, there are some very real problems with getting a small business loan from a bank. First and foremost, it’s incredibly difficult for those who most need money to get it from the bank – banks only want to lend to the most stable businesses, so new entrepreneurs are going to have to look elsewhere. Even if you are qualified, you’ll have to go through an incredibly lengthy paperwork process that will culminate in months of waiting before you are approved – and perhaps even more time before you get the money. This is not an options for those businesses that need capital quickly.
Should You Choose a Bank Loan?
Despite the issues surrounding these loans, they’re still the best kind of financing for small businesses. If you are qualified, there’s no good reason not to pursue a loan from the bank. If your business is well-established and you can wait some time for the capital injection, this may be your safest and most stable bet.
How to Get the Loan
If you feel that a small business bank loan will work for you, the process of getting the loan can be started by visiting a local branch of your chosen bank and speaking with the individual who is in charge of small business loans. You’ll spend a significant amount of time filling out forms, but you’ll also need to provide quite a few bits of paperwork and statements. You should bring the following with you:
- An overview of your business and any relevant financial history
- Your business’s financial plan
- Income tax returns for at least three years, both for you and the business.
- Profit and loss statements for your business, as well as balance sheets and any projected financial documents.
- Any professional documents, including licenses, franchise agreements, and incorporation documents.
- Your personal information, including where you live, where you went to school, and any relevant business experience
- Basic contact information for the business, including your tax ID and address
- Personal financial history, including your credit score. Don’t apply to multiple banks at the same time, or your own score will take a hit.
Unfortunately, it may be hard for you to get a small business loan from a larger bank. The margins are low and risks are high, so take a look around to see if you can find a bank that has a solid plan for dealing with small businesses. You’re more likely to get a loan from a local bank, though, as their ties to the community make them more likely to lend to locals.
Don’t be discouraged if you can’t get a loan from the bank. Even established businesses are turned down, so you may want to go online. Online lenders might make the process easier, and they’ll often offer competitive rates. Regardless of where you get the loan, the process will require a great deal of attention and some patience.