Running your own business is not easy. In fact, it is quite complicated. Everything can go according to plan, but you may not have anticipated the need for additional financing to buy new machines, invest in opening a store, hire additional staff, renovate computers, launch a new product, etc. If these situations arise, you must be ready to finance your growth. Otherwise, you must wait until your business saves enough cash to be able to invest. As the saying goes, time is money, and luck is actually your ability to seize business opportunities when they arise. Here you will learn how to obtain a business loan in four simple steps and the requirements that you must meet to be approved by the lending institution.
4 Steps to get a business loan
Step 1: Plan how you are going to invest the money
Applying for a loan cannot be a hasty decision or one made without careful consideration. By signing the contract with a lender, you agree to fulfill a new obligation. So before contacting a lender or even speaking with brokers to get you a lender, ask yourself the following questions:
- How are you going to use the money?
- How much money do you need?
- What will the return on investment (ROI) be?
Let’s review one by one.
A. How are you going to use the money?
You must have a clear idea of how you are going to invest the loan in your business. If you talk to a lender or a broker and cannot answer this simple question, they will think that you are going to use that money to go on vacation or for other personal reasons. That is why you must clearly communicate how you are going to use the cash. Explain yourself in clear terms as to who you will be using the loan.
B. How much money do you need?
Knowing how much you need will be more or less difficult to calculate depending on how you are going to use the funds. It’s easy to calculate if you’re buying a tangible item, like equipment or inventory. It is more difficult when you need the cash to finance your operations or, in other words, when you need working capital. Be sure to ask for the correct amount, as asking too much can result in a rejected application and unnecessary debt. And if you ask for little and fall short, you will not be able to meet your goals. When in doubt, consult your accountant or better still your broker can be of help, if you’re using one. To get a broker, we, at Fincue, can facilitate it for you. We’ll help you get the right one for the job.
C. What will the ROI be?
This last point is no less important than the previous two. You must consider the profit or net return that you will get from your investment. First, calculate the amount of money you hope to earn from the loan investment. Then calculate the cost of the loan (including fees and interest) with a business loan calculator. If the benefit is greater than the cost of the loan, you are getting a positive return on your investment and it is a good idea to accept the loan.
Step 2: Calculate how much you can afford each month
The second step is to calculate how much you can afford each month. You must be conservative and realistic when calculating this amount. Don’t fall into false optimism. Evaluate in payment what you can do without having to significantly increase your sales. Make sure you can make your payments even if you don’t meet your growth goals.
Keep in mind that if you don’t pay on time, you will likely incur a late fee. Unfortunately, some entrepreneurs do not calculate the monthly payment well and feel compelled to apply for a new loan to cover the debt. In addition, not paying the installments on time can lead to the denial of future credits. Even if you are approved for a new loan, it will probably be more expensive or with worse conditions than the existing one.
To avoid financial difficulties, we recommend using the Business Loan Calculator to measure monthly payments over different loan terms. The following information or parameters are what you need to do the calculation:
- The quantity you want to order,
- The number of monthly installments you want for your credit; between 24 and 60,
- The monthly interest rate.
Step 3: Choose your lender
Choosing the right lender is extremely important. You may find a lender yourself or get broker to help you out. If you have time and know-how you may be researching about a lender, often this is a tall order for many, thus the solution is getting a broker. Getting a right broker is the best and comes with many benefits for you, the chief of which is that they’ll get you a list of lenders and provide you the best that meet all you want and make things easy for you.
At Fincue, we connect borrowers to brokers so that they can get suitable lenders hitch-free quickly.
Before applying for a loan with a lender, spend some times doing a little research on the company. These are several questions that you should be able to answer with your research:
- What do online reviews say about the company?
- What are the minimum requirements to qualify for a loan?
- What documentation do you need to approve your application?
- Can they finance your loan in a time frame that meets the needs of your business?
- Will the application affect your credit score?
- What are the terms of your loans? Would these terms allow you to earn money with the investment of the loan?
Step 4: Submit the loan application
You should understand that even if you meet all the requirements, you may not be approved for a loan.
Once you have started the application process, try to be responsible and complete it quickly. Give yourself a deadline to finish the process. Any delay in the process will postpone the time you receive the money and the real price of not taking advantage of the opportunity to obtain the loan on time.
If you’re considering taking a business loan to grow your business here in Australia, we can help you out. Our job is to get you a broker that will do the necessary work and get you the right lender for your business loan and even beyond. Speak with us today at Fincue and we’ll set to facilitate the whole process for you.