The Dos & Don’ts of Getting a Small Business Loan
Small business loans are necessary for a wide range of scenarios. Let’s say you’ve got a fabulous business idea, but you lack the funds to put it in motion. A loan will give you the funds you need, letting you get your idea off the ground.
Similarly, what if you have a small business that’s looking to expand or to try something new? Again, there’s an idea in your head, but the money isn’t quite there to support it. As you can figure out, business loans come in handy here too.
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The unfortunate thing about small business loans is that people approach them incorrectly. There is a right and a wrong way of dealing with a loan for your small business. Today, we’ll explore the dos and don’ts:
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Do: Go to a legitimate lender
Only get business loans from legitimate lenders – which tend to be banks. This doesn’t necessarily mean you have to visit your local bank; there are ones like Evolve Bank that provide small business loans online.
What you absolutely should never do is opt for a loan from an illegitimate source. No loan sharks or other dodgy companies/individuals should be considered. If someone with a lot of money claims they can offer you a small business loan, walk away immediately. Do your homework on any potential lender.
Don’t: Get a personal loan
Avoid using personal loans to fund a business purpose. In fact, lenders are known to impose restrictions on personal loans to specifically prevent them from being used for any business purposes. It’s more of a safety thing from their perspective; a business loan carries more risks for them than a personal one.
If you get a personal loan and use it for your business, you could run into issues. To avoid any complications, get a proper business loan.
Do: Provide as much information as possible
Always get as much info as possible before you apply for your small business loan. This will include details on the loan amount, your business plan, business bank statements (if you’ve already started a business), personal banking information, and a strategy to prove you can repay the loan.
The more info you have, the greater your chances of being approved for the loan – and being approved for the amount you’re after. A lack of information can ruin your chances and leave you with either a small loan or no loan at all.
Don’t: Apply before checking your credit history
Lenders always check your credit score before giving you a loan to see if you’ve borrowed money before and paid it back. If you are getting a startup loan, they’ll check your personal credit score. If your business has borrowed money in the past, they’ll check your business credit score.
Always be sure you check your credit history before applying to ensure you’re in a good position. A poor score will usually lead to a poor outcome. So, work on improving your credit score if necessary.
In reality, applying for a business loan is straightforward. Just be sure you go to a legitimate lender, ask for a proper business loan, have a good credit score, and can provide as much information as possible to support your application.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(amazon author page) amazon.com/author/kenboyd
(cell) (314) 913-6529
(email) ken@stltest.net
(website and blog) https://www.accountingaccidentally.com/