Business loans can be a lifeline for businesses of all sizes, helping them to cope with seasonal fluctuations in sales or unexpected expenses. They can also be used to invest in new equipment, inventory or to relocate your business. It is important to use the funds wisely so that you can increase the size of your business and not rely on debt financing in the future.
Before you submit your application, you must determine the amount of capital your business requires and what type of loan will meet those needs. You should also know the duration you’ll need to pay back the loan, since this will affect your interest rates and fees. Many lenders offer a one-time loan option or a credit line with terms of repayment that vary from a few days to several years.
The majority of lenders will require you to submit a range of documents, including your business plan as well as financial statements and credit history. They may also require collateral, like a real estate, equipment or money due to your company (accounts payable). Some lenders will let these requirements go for established creditors, those with outstanding credit and who are seeking large amounts of capital.
The lenders will also assess whether your business is able to repay the loan by analyzing metrics such as its fixed-charge coverage ratio as well as the amount of cash it is likely to generate every month. They will assess whether the business has any outstanding debts and evaluate its compliance with all legal requirements. They will also look at the industry you are employed in to determine whether it’s unstable or stable.