What Are the Few Things You Must Double Check
for Getting a Large Business Loan?
By Virgis Eva
Getting a business loan is not as easy as it used to be before the Great Recession. Nonetheless, that is not reason enough for you to be disheartened. You are about to start a business, and it cannot begin without enough funds. Every company needs a steady source of capital during the setup process.
Are you checking more than one source for the loan?
Always start looking with some time in hand. It is imperative for you to knock on a few doors even when you have a secure source of the loan. All business loans above $50,000 are large business loans, and you will notice different companies offering a variety of interest rates depending on the exact amount, your credit score, business profile, and collaterals. SBA loans might be amicable, but they will not cover the needs of a large business. The entrepreneur must find companies that offer loan amounts at friendly rates.
Do you know why you need the capital?
Any business owner can grossly state that the money is for starting the enterprise, but what exactly will you be spending the initial amount on? Do you need to buy new machinery? Do you need a new office or warehouse on a lease? Are you about to pay off other small loans from before? While the first two reasons are the most common and smart investment plans, new loans for paying off outstanding ones or making up for financial losses might not be such a great idea. You will face difficulty in finding loans that will help you cover non-essential costs.
What’s the loan amount you need this time?
Next, once you know the purpose of the loan, find out how much money your company needs. Why should you agree to take a credit of $50,000 if you need $60,000? Never settle for two separate loans when one loan is enough to cover the costs. The total interest rate of two credits can be more than that of a single loan of a higher amount. Also, it is not wise to take out a loan for a sum more substantial than what you need right now. Estimate the value of your working capital. Ask help from an expert in doing the same, if necessary. Approach the funding institutions only when you know the amount for sure.
What’s your personal credit profile?
Check your credit score. Some individuals will tell you that personal credit records don't matter while applying for big commercial loans, but they are wrong. If you are about to start a new business, your personal payment history will show whether you are a responsible creditor or not. Lenders like to work with entrepreneurs who have a score in the 700-800 range. You are more likely to get an unsecured loan in case your business is over a year old, or you have successful entrepreneurship history that dates back a couple of years.
In truth, when a business has a high operating margin, its chances of pulling through a trying market are high as well. The lenders will evaluate your company’s cash flow margin each time you approach them for a business loan.