How to Get a Loan for Small or Medium Businesses?
When we talk about lending to business, we mean quite large amounts that are issued for the long term and are taxed at low-interest rates. Other conditions are disadvantageous to a novice businessman.
It is with such loans that banks are most reluctant: these loan products carry high risks. E.g, if you want to start an email marketing firm in the USA. Then, it possesses a higher risk of exposure to not being successful because of the competition. Therefore, very strict requirements are imposed on potential borrowers.
How to increase the chance of getting a loan for small business
- Collect as complete a package of documents as possible: If you are not sure whether a manager will need this or that “piece of paper”, feel free to include it in the list. For those documents whose originals cannot be included in the list, notarized copies should be prepared. If the activity you choose involves licensing, the license obtained will significantly increase the chance of approval of the application.
- Providing solvency: A secured loan is beneficial for both the lender (bank) and the borrower. The first receives an additional guarantee of the repayment of their finances, and the second – an advantageous offer: secured loans to small businesses are formed on milder conditions (the less confidence a bank has in repaying a debt, the higher interest rates and the stricter the requirements for a client). Movable or immovable property is suitable as security: land, securities, non-specific equipment. Another way to ensure the fulfillment of debt obligations on a loan can be called a guarantee of an individual or legal entity.
- Impeccable reputation: Please note that the bank will meticulously examine your credit history. The absence of late fees and the complete closure of previous loans at the time of application will be your advantage. At the same time, the complete absence of any lending history will be regarded as a drawback: a banking organization simply does not know what to expect from you. However, there is a way to improve your credit history: you need to take several small loans at any bank and pay them in a timely manner. And on existing delays provide evidence of good reason, if any.
- Work business plan: A well-written, detailed document significantly increases the likelihood of approving an application for a loan to a small business in cash or by bank transfer. After all, it is a business plan that reflects the level of professionalism of a businessman and allows the manager to get an idea of how the client is going to use the requested money and what is the likelihood that his company will be able to fulfill its main task – gradually but steadily increase profits.
Despite the high risks of lending to “young” entrepreneurship, competing for customers, many banks are developing products and programs that make it possible to obtain a loan for business development without collateral and attracting a guarantor.
Naturally, unsecured loans are accompanied by a significant tightening of conditions for the loaned person:
- The reputation of the potential client is carefully checked and the prospects of his company are studied
- Minimum debt repayment periods are set
- The rate on unsecured loans can reach twenty-five percent.
In view of the above factors, few businessmen decide on an unsecured loan, even though an unsecured loan is issued much easier and faster: you do not need to prepare an additional package of documents for property acting as collateral.