Applying for a Business Loan for a Small Business
There are several ways business owners can access funding for small businesses. First, you can look for investors in exchange for partial ownership of your company. Next, you can use your own personal savings. Lastly, you can take a business loan from a financial institution such as banks and credit unions to support your business. In this article, we will talk about everything you need to know when applying for a small business loan.
Benefits of taking a loan for a small business
Build a solid business credit
Small business loans help you build credible business credit. When you apply, get approved, and repay back the loan, you are building a future credit score that will help you achieve more and better loans in the future. Solid business credit will help your business to continue growing.
Invest in equipment
If your business needs new equipment to increase productivity, then taking a loan will be helpful. You can either buy the equipment or lease it. A loan will help you buy and save money in the form of tax benefits for making an expense. The most important question that you need to ask yourself is, “will this equipment help my business make more money?” If the answer is yes, then taking a loan is a good idea.
Keep an ownership stake
If you get investor funding, you don’t need to pay that money back as you’ve exchanged it for a share of your company. Depending on the money that you need, you might end up selling a large portion of ownership of your business to the investors. This will leave you with a small share and less authority to make important decisions. To avoid this, you can seek a loan from a financial institution and get to keep making the important decisions.
Expansion
Expansion means that sales and profits are most likely to increase. There are many ways to expand a business. Whether you’re hiring more employees, opening up in new locations, or renting more office space, you need adequate money. If you don’t have enough money for expansion, you can approach a financial institution for a small business loan.
Establish an Emergency fund
Just like for personal use, businesses too require emergency funds. It may incur unexpected expenses, which you might need to offset to avoid slowing the business. In this case, taking a loan and creating cash reserves is important. This is beneficial, especially for seasonal businesses.
Requirements to apply for a business loan
The financial institution will ask for certain things when taking a business loan. First, they may ask for financial statements if you don’t already bank with them. The financial statements give the bank an idea of your cash flow to determine the risk of providing your business with a loan. Next, they may ask for supporting documents verifying that you own the business. Some things they may not ask you directly, but they will run background checks such as a business credit score check. Therefore, it’s important to maintain a good credit score by borrowing and paying loans on time.
Final Thoughts
Applying for a business loan for a small business is very beneficial. It can help you expand and make more profits. But you need to plan adequately and use the money strategically for important things such as hiring more staff, new equipment, and marketing strategies. A small business loan also helps you build solid credit just in case you need to borrow again in the future. At CVF Credit Union, we can help you unlock infinite possibilities and take your business to the next level. Get in touch with us for any inquiries.