Starting a business is not easy. It requires skills, dedication, critical thinking, and adequate funding. Although many people may have an idea on how to start and grow their business, not everyone has enough resources. That’s why small business owners often go for a business loan.
There are many lenders with different types of business loans out there. Some may fit your business better than others. So, it’s essential to check each of their qualifying criteria, benefits, as well as their drawbacks.
The bank is the first place that most people would think of when it comes to applying for a loan. However, according to the Forbes website, the downside to this is that lots of applicants do not qualify. The requirement for credit score and financial history is way too high.
The truth is, most entrepreneurs apply for loans not because they have lots of money but because they need it. Before the credit crisis back in 2008, obtaining business financing was not as difficult. After that, banks have started to become stricter with their loan requirements. Because of that, qualifying for loans have become a lot more difficult for small business owners.
You should choose a bank loan if:
- Your credit score is excellent, and if you meet their application requirements. Banks usually offer the lowest interest rates for small business loans.
- You plan to establish your credit history further. This way, when you need to apply for another loan in the future, you may qualify for a more substantial amount.
- You have no immediate need for funding. Typically, processing loan takes 30-60 days.
You should not choose a bank loan if:
- Your business is unstable, and your credit history is not good. Banks often require an excellent credit score for approval.
- You do not have a detailed business plan. An intricate business plan that outlines your business, bank records, tax, and marketing plans are some of the things that banks require.
- You do not have valuable collateral, or you do not want to risk your personal assets. Banks consider small business as a risk. So, they require collateral in case the owner cannot repay the loan.
- You have a fairly new business. For banks to consider a loan application, the business financial data has to be at least three years.