A Quick Introduction to Business Loans
A business loan is a solution a CFO can consider when finding a way to manage various operations. A business loan is a financial instrument where you can borrow money from a lender and pay it back alongside whatever interest charges the lender incurs. This solution can work for many cash management needs, especially since you’ll require funds for many tasks.
Businesses can use these loans for many purposes:
- A business loan can help a company cover its start-up costs.
- A loan can also help a business at times when the cash flow isn’t working as well. You can find loans that can work during slower times in your business when your cash flow management efforts aren’t working.
- You might need to purchase equipment for various business operations. A business loan can cover expenses for those items.
- Your loan can also help you expand your operating capital needs. You will require further operating capital to keep your business active, so having a loan can help you keep your work running, especially if you’re trying to hire new people.
What Are the Differentiations of Business Loans For Cash Flow Management?
You will find many business loans that can work for your cash flow management needs:
- Term Loan – A term loan is a loan where you will get a lump sum of funds and repay it with interest over a timeframe. This solution can work for your cash flow management plans, but some loans might require collateral or a personal guarantee from a CFO.
- SBA Loan – The Small Business Administration offers loans where the federal government guarantees most funds. This solution is convenient for many new businesses, but the application process takes longer on average.
- Microloans – The SBA also offers microloans that include less money than an average loan. These loans are easy for smaller groups but are typically for nonprofits and other niche entities.
- Equipment Loans – An equipment loan focuses mainly on the equipment you buy for your business. This option works for businesses of all sizes, although you might require a substantial down payment.
- Cash Flow Loans – A cash flow loan works based on prior and forecasted cash flow operations. Your loan can work without collateral or guarantees, although the application process can take a while. This loan may not be open to newer groups either.
You’ll find many of these loans through various groups, including banks and online platforms. Traditional banks often offer loans with better rates, but the application process takes longer.
An online loan may be easier to find, plus you can get your funds faster while online. But online loans might also have higher rates, as online providers are often more likely to provide loans to businesses with poor or minimal credit histories. You can contact an online provider at any time, but the cost may still be too high for some groups.
Matching Business Loans For Your Cash Management Services
You will find many business loans that can fit your cash management needs. But you have to look at what you’re doing with a loan when finding something that fits. Here are five critical points to review when looking at what you should get from a business loan:
- What are your business goals?
Look at what you want to get out of a loan for your business before applying. You might need a loan to manage your cash flow, or you might require help purchasing equipment.
You can review your plans for your loan and compare them with what you’re anticipating out of your business after you get the funds. Planning your loan based on what you require can help you figure out what terms you should get from your loan.
- See how much money you need.
One cash management problem many CFOs see when finding business loans entails borrowing more money than necessary. While you can qualify for plenty of money for your loan, borrowing too much can result in you spending more on interest than you can afford. It might also take longer to qualify or receive funds when the loan is too high in value.
Look at how much money you need based on how much it would cost to expand your business, what you’ll spend on hiring employees, and other factors.
- Review the repayment terms for your loan.
This next part of business cash management entails knowing how you’ll repay your loan. Your repayment terms can include points on how long you’ll have to pay off your loan, how often you’ll complete payments, the interest rate on your loan, and any other fees. Make sure you know what these terms are, as they can give you an idea of how much you’ll spend over the life of your loan.
You can also review if you have the option to repay your loan early. This feature is convenient for cases where you bring in more money than anticipated, as you won’t spend as much on interest if you pay it off early. But some lenders might charge early repayment fees, so you’d have to see if paying it off early would cause you to spend more money than necessary.
- Check your credit score for your loan.
Your credit score can influence the terms of your loan and whether you’ll get one. Your credit score measures how well you can manage funds, including how you borrow money and pay it off.
Borrowers with higher credit scores are more likely to qualify for loans, plus they can receive lower interest rates. Companies with lower scores can still find loans, but they might struggle to find some lenders who can help. Even after getting a loan, a low-score company could still struggle with high fees and interest rates due to the added risk the lender incurs.
- Look at the quality of the lender.
All business loan lenders vary based on the funds they have, the types of loan products available, and how you can communicate with representatives as necessary. Be sure when finding a loan that you find one from a lender who can help you find a plan for repaying your loan that works.
Tips For Getting Approved For a Business Loan
Your loan is essential for your business cash management plans, but don’t expect to receive a loan from anyone. You’ll have to prove your ability to manage a business loan well. There are a few tips you can use to get approved for a loan:
- Illustrate a strong business plan.
You can start by listing your business plan for how you will use your loan. The plan can include details on your current financial situations, future projections, and how you will use your loan for certain operations. A lender will be more likely to give you a loan if you have a solid business plan illustrating you understand what you want to get from your loan.
- Establish a strong credit profile.
Your business credit profile will need to be strong enough to show you’re able to repay a loan. You can build your company’s credit score by covering more expenses and paying them off on time. Your score could also increase over time, as a business that has been around a little longer will be more likely to have a better profile.
- Be prepared to provide the necessary financial information.
It’s easier to get a loan when you have enough financial info ready. Check the requirements a lender holds when seeing what info you’ll have to provide when getting your loan ready. Your lender needs enough content on your business to make an educated decision, plus you might get a better rate if you have enough content showing how well your business can handle its finances.
- Be patient.
The last point for getting a business loan is to be patient when doing so. It can take days or weeks for a lender to approve your loan. The timeframe could be even longer when searching for an SBA loan.
A lender will need time to analyze your situation and see what can work for you. There’s also a substantial backlog of borrowers that lenders have to cover as well, so expect to wait behind whoever came before you.
A Final Takeaway
You can find a great business loan for your cash management plans if you know where to go. You’ll find many lenders who can assist you, but be sure when searching around that you find lenders that understand your needs and will be there to help.
Check with us at the Wheeler Group for more details on how business loans can work for you. We are here to help you find suitable lending plans that can work for your business.