Applying for a business loan can be a notoriously time-consuming and stressful process. With the number of small business loans falling dramatically, more businesses are turning to online lenders for the financing needs. According to market reports, online lending is growing fast and becoming the go-to option for getting small business loans.
If you’re considering applying for a business loan online, there are various things you should know. While the process of applying for online loans may seem easier than traditional loan application, there are a few basic things you should know before applying.
How Much Do You Want to Borrow?
When applying for a business loan, there’s often a temptation to borrow more money than you actually need to finance your business. You have to decide what amount best fits your needs. A larger amount may come with costly interest rates. You don’t want to find yourself in a situation where you can’ pay back a loan you borrowed.
Whether you’re looking for secured or unsecured business loans, you must look for a suitable lender who offers the type of loan you need at the most affordable terms available.
What are the Eligibility Terms?
Business loan lenders reserve the right to decide whether to approve a loan or not after carefully evaluating your eligibility and other aspects that may affect your ability to repay the business loan. If you have already identified a suitable lender, you need to check their eligibility terms carefully to make sure you meet the requirements needed to qualify for a loan.
The amount a lender will be willing to give your business will depend on a number of factors like what you’re financing, your business income, your business performance and your ability to pay back within the agreed timelines.
Know Your Credit Score
Your business and personal credit score speaks a lot about your financial standing. If you have a bad credit history, you’ll most likely face challenges getting a loan. However, a good credit score proves to the lender that you’ve been paying back debts as required in the past. If you have a habit of paying all your business-related bills and loans on time, loan approval is easier.
Even for small business loans that may not necessarily focus on your credit score, you should always strive to maintain a good credit rating to better your chances of getting fast approval and favorable business loan terms. Lenders look at personal credit scores to judge the reliability of business owners.
Choose Your Lender Carefully
With many online lenders to choose from, you need to be careful not to fall for scammers. Do extensive background research on a lender before getting a loan from them. How long have they been financing businesses? Are they registered in your state?
Ask for references and read reviews from real businesses that have borrowed money from them in the past. You don’t want to take any chances when choosing a business loan lender. Ask questions and get clarification about their loan application and approval processes.
Look at the Interest Rates and Fees Charged
Business loans come with a number of costs. Interest rates don’t constitute the only cost of borrowing money. You may be required to keep an offsetting balance when you take out a loan, pay loan processing costs and pay penalties in case of late payments.
Carefully consider the rates charged for the type of loan you want and all the fees associated with the loan before making a decision. Affordability is key when taking out a loan.
Read through your business loan agreement before signing it. The agreement should be clear about the interest rate charged, the money to be funded into your account, the repayment schedule and deadline and any fees associated with the loan.