What you Need to Know About Getting a Business Loan

Whether you operate in a real world setting out of a storefront in California, or you have an online venture based on intellectual property, chances are you will need an extra infusion of capital to either expand or improve your business. One of the most common ways to acquire the additional capital that you need is by applying for a business loan.

Be Prepared with the Right Documentation

Getting a loan is no simple matter. You are required to come up with the necessary documentation in order to prove to the lending institution that your business is worthy of receiving the loan. This means putting together your profit and loss statements, your inventory breakdown and other such account reports.

You will also have to supply your business plan and a proposal for the intended use of the loan funds. This proposal will have to include a detailed breakdown of costs, profit projections and repayment estimations. Once you have these together, you need to know a few things as you negotiate your loan.

Consider the Lender’s Point of View

When you approach a lender for a loan, remember how they make their money. Financial institutions function on creating money from the money that customers pay or deposit. They may give off an air of indifference, but in the end, they really want your business.

Consider the loan officer to be a salesperson, just like someone who sells stoves at an appliance outlet, except that this person is trying to sell you a product made up of money. Without the sale, they fail to make commission, so know that you are in the driver’s seat.

Get to Know the Different Types of Loans

There are several different types of business loans available to you, so you do not need to take the first one you are offered.

One such option is called a simple interest loan. This type of business loan has monthly interest charges based on the amount of principal left to pay off. This means that as you pay off your loan, the interest also decreases, and you will reduce the total amount of interest that you will have to pay in the end. If you are seeking to pay off your business loan early, then this may be an option to consider.

Another type of business loan is an installment loan. This is known as a front-end loaded loan. This means that the amount of interest you are required to pay is based on the initial principal. Thus, the amount of interest that you need to pay remains the same regardless of how much of the principle you have already paid off. In this case, rushing your payments or making balloon payments to end your loan early will make no difference to the interest owed.

Of course, this route requires a great deal of effort and a lot of footwork. Many small business owners have successfully tried another option to secure capital called a business cash advance. In a business cash advance, you sell future credit card transactions to a business cash advance facility. Because this is technically your own money, there are no interest charges and there is no obligation for repayment, and you do not have to jump through a thousand hoops to get it.

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