You know how to get a business loan from a bank. You’ve been getting credit from the bank for years, and you’ve always gotten a great interest rate. But have you ever stopped to think about what it means to have good creditworthiness?
You probably don’t realize that business loans and personal loans are really two different concepts. They are also two very different loans, with very different implications. The first thing you need to understand is that both of them are risk-free, capital intensive investments. And yet they carry very different connotations for lenders, depending on their definition of creditworthiness.
The first step on your journey to learning how to get a business loan from a bank is to have a clear understanding of the difference between business financing options and personal financing options. A business loan is simply a loan that you use to make purchases. In most cases, it’s a loan secured by collateral, such as your house or car. This means that if you can’t pay off the loan, your lender can repossess those things and sell them to recoup the money you borrowed. A home equity loan is exactly the same idea – if you can’t make payments, the lender can foreclose on your house and sell it to recoup the money. A business loan can be unsecured, meaning that there is no collateral securing it; however, the risks are much higher.
As you study how to get a business loan from a bank, you will find that unsecured loans carry slightly higher rates of interest because of the increased risk. You will also learn that most lenders want to see a minimum credit score. Therefore, if you are unable to demonstrate an adequate level of creditworthiness, you may find that your lender declines your application for financing.
The SBA can offer you small business financing options through one or more of its loan programs. The SBA loans include loan programs that are designed to help FBOs (sole proprietors) who have little or no collateral to secure their loan. These programs provide small businesses with low interest financing for start-up and operating expenses. There are also financing options available through the SBA that allow businesses to obtain loans even if they have past lending problems. These include a number of loan products that are not based on credit score criteria. One of these loan products is known as a distressed finance loan, and it allows small businesses access to cash in a matter of weeks if they are facing bankruptcy or have experienced negative cash flow in the past.
While the SBA can help you find small business financing options based on your personal credit as well as on your business credit scores, they will not help you obtain small business loans that require no credit check whatsoever. In order to get such financing, you will have to have good business credit scores. If your credit scores are not good, however, you can still obtain a small business loan with poor credit – the only difference is that you will be required to have a much higher loan to start up the business as well as a much higher interest rate to pay off the debt after it is established.
How to Get a Business Loan from a Bank – Financing Tips for Start-Up Businesses Many aspiring entrepreneurs start their business with the help of a bank that specializes in small business financing. However, there are many other lenders who may be able to help you with your business loan needs as long as you have good personal credit scores. Your local bank can offer you a business line of credit with which to start your business. In some cases, the lender will require that you pledge your personal credit score as security for the loan. This will be an excellent option for those with poor personal credit scores because it will allow them to get the financing they need without having to give up their own personal credit score in the process.
There are many ways that you can find a lender who specializes in offering loans for start-ups. If you use the Internet, you can find several good search engines that will help you find the lender who will provide you with the financing you need. Keep in mind that a good lender will not ask you for collateral, so you should have excellent personal credit scores if you plan to apply for a traditional loan. If you do not have great personal credit scores, though, you may want to consider applying for a lender online that specializes in working with small business owners to obtain the financing that they need.