For as many types of small businesses as there are out there, there are as many reasons for seeking a small business loan. And if you have a small business, there will very likely come a time that you will be turning to a business loan to help with the various financial needs your business is bound to have over time.
You may have a seasonal business with varying cash flows. Or you may be looking to expand your business into additional locations. You may want to buy your building or additional equipment. And in the COVID-19 era, you may have sought a SBA Paycheck Protection Program (PPP) loan to help keep your workforce employed. These are all smart reasons to turn to financing – and each of these have a loan or financing program that will work best.
Your local bank can help you to apply for the small business loan that works best for your situation, first by taking time to understand your needs, and next by determining a program you can live with. But it helps to understand a few things about small business loans, even before you speak with your bank.
Borrow Money Before You Need It
When you have time to consider your options, you are likely to make the choice that is best for you and your business. You also have the time to gather together important paperwork – such as prepared financial statements – that will be required by your lender. Most importantly, if your business is running well and not in need of immediate cash, chances are you’ll look better to your bank as a candidate for financing.
Get Specific with Your Loan Needs
Say you are looking for a loan that will help your small business maintain cash flow over the course of your business cycle. You will likely be seeking a business line of credit – something you can draw on during your slow months, and then replenish during your high season. Generally speaking, it’s always wise to have a business line of credit in place. A business line of credit can also prove very handy when opportunities arise, such as the chance to replenish inventory or materials at a discount. Lines of credit like these, or simple overdraft protection, are generally recommended when needs are one year or less.
If you are looking to purchase equipment for your small business, you’ll likely consider a loan with a 5 to 7-year term. These loans are pretty much equivalent to an automobile loan; in fact, the equipment you may be purchasing could actually be an additional vehicle for your business.
Upgrading your office technology, or purchasing machinery for your operations are also items that can be funded with a business loan.
You may be looking at a more strategic expansion, such as purchasing the building you’re located in, or buying additional property or buildings for your business. If this is the case, a mortgage is likely the right way to go. And as in the case of home mortgages, there are a number of different programs available for your small business.
Remember Collateral and Records Requirements Can Vary
Having solid financials in place for your small business is obviously a great place to start for any type of loan approval. Financial statements – both business and personal – will be needed. But details on paperwork and collateral depend on what type of loan is being considered. Generally speaking, the larger the loan, the more details, and collateral needed for approval. For business lines of credit, a solid picture of accounts receivable is usually primary collateral. When seeking a loan for vehicles or equipment, you’ll need information and invoices for what’s being purchased. And when making property purchases, real estate appraisals and perhaps business plans will be required. In purchasing real estate and equipment, the items themselves usually become collateral for the loan.
Work With Your Local Bank
Having a local bank as part of your support team is key to your success as a small business – and establishing a relationship before you need it will certainly make things easier when the time comes.
A conversation with the business lending group at your local bank can help clarify your needs and help you through the process of getting the loan that’s right for you. They can help you navigate the SBA loan process as well. They know the local market more than most, and can readily picture what you’re trying to do with your business. They can also work with you to develop the right loan program based on your cash flows and projections – helping you avoid a situation where payments might prove difficult. As part of the local community, they are as interested in your success as you are.
At Union Savings Bank, business lending is our business. We want to help you grow your business by providing local business expertise, customized solutions, and a dedicated business banking team that provides the best-personalized service for your small business. Call us today to start the conversation, 866.872.1866.