Top 5 Things To Look for in a Business Loan
When your small business is looking for a loan, whether it is to start your business, expand it, or help it run smoothly day to day, it is important to know what lenders are looking for. Securing this invaluable resource can feel like a difficult feat, especially if you are new to the business. When getting the best financing for your business, knowledge is power, and knowing what criteria lenders are looking for can make all the difference. To help you understand exactly what you will need to secure the best financing for your business, here are the top five things lenders look for when considering business loans for small businesses as detailed by a lender—
Collateral
One of the first and most important things lenders need to know is what the company will be using for collateral. This will be what secures the project and the loan—if the business fails to meet the agreed upon terms, the lender will seize the collateral to recover the loan amount. Collateral can take the form of property, equipment, inventory, or another important asset. This also reduces the risk the lender is taking with your business by ensuring that they will, no matter what, recover some or all of the loan they provided even if the business is unable to pay them back in the traditional way. When applying for a loan or speaking with a lender, have your collateral ready to be discussed.
Cash Flow
Lenders need to know that your business will be able to pay them back what they have provided, and understanding your business’s cash flow is an important part of this. Cash flow is the money coming in and out of your business, and if this is steady, lenders will see that you are likely able to keep the terms of your loan. Strong cash flow shows financial stability, and therefore less risk for both your business and the lender.
Experience
Before even making an offer, lenders will often take the time to get to know your business’s background. Are you just starting out? Is your business a strong establishment? What experience do you have in your market? Have you had loans or financing before? How did you fare with it? Answering each of these questions is essential for a lender to understand your business as a whole, and how it fits into the bank’s overall lending profile. The more they know, the better your loan options will be.
Outside Factors
Not everything is up to the business itself. Market conditions, economic trends, and industry performance can have significant effects on a business and how well it is able to function, even when the business is doing everything right. These factors are very important for lenders to consider when assessing your business, as they will give them a better idea of your company’s future ability to pay them back.
Leadership
Having strong and reliable leadership is absolutely essential for the success of any business. With this in mind, lenders will evaluate your business’s management team to understand their experience, decision-making skills, vision, and more to come to a conclusion regarding your eligibility for a loan. Solid leadership reflects the business’s ability to adapt, grow, and manage finances responsibly—in other words, how will the management handle a bad month or event to get the business back on track? Knowing this will boost a lender’s confidence in your business and your ability to pay them back.
Finding and getting the best loan for your small business is closer than you think. Equipped with this knowledge and the understanding of what you need in your financing, you are ready to take on this challenge. Luckily, you do not have to do it alone. 1st Advantage can help you both choose and secure your business loans. Our financial experts are available to get to know your business needs, go over your options, and help you decide on the best loan to apply for. Our lenders have years of experience and are dedicated to building a personal relationship with you and your business. Here, we believe that loans and financing should be tailored to the business and its owners—not the other way around. If you are looking for a business loan for any reason, take a look at our extensive lending options here. Member FDIC and Equal Housing Lender