Business Loan Basics

Whether you're trying to get your business started or grow it, a business loan can provide the funds you need.

The Top Line

• Business loans are sometimes essential for businesses that want to fund their daily operations or expand their business.
• Business loans can be used for a variety of purposes.
• Lenders will want to know what you want to use the business loan for and that you understand the implications of the loan.
• There are several different types of business loans to choose from to suit your specific needs.
  

If you own a business, then you may be familiar with the need to gain financing for your business quickly, affordably, and sufficiently. Businesses are complex structures that require financing to operate. The nature of businesses and the economy is such that you may, as a business owner, need access to fast capital that won’t burden your business or cause financial hardship. This could be for any number of reasons.

Regardless of the reason that you need access to business lending, you should always ensure that you are familiar with business loan basics and what the benefits and downsides are to getting a business loan. With this guide, you'll have the information that you need to ensure that your business lending quest is successful, safe, and sufficient for your needs.

Reasons to Get a Business Loan

There are many reasons to get a business loan. You might wonder why these reasons matter, but we can assure you that to lending providers and banks, these matters certainly matter. If you truly want to get the best experience when you are looking for a suitable lending partner and product, this list will help you narrow down your needs. Here are some of the most common reasons that business owners pursue business loans.

Expansion

One of the main reasons that a business owner might seek financing from a bank or lending institution is for the expansion of the business. This could mean that you want to purchase an additional location, add on to your existing location, or do anything else that might help you expand your business.

These are generally thought of as pretty safe loans and easy to acquire, with a positive financial history. A business loan for expansion could help you to hop on an opportunity quickly without having to wait to save up the financing yourself. In this way, it can be very helpful to your business when it comes to growing revenue and influence.

Hardship

Another common reason that you might seek financing for your business is when your business falls on hard times. These loans are a bit more difficult to acquire because it will be much more difficult to convince your lending partner that your business will be able to pay the loan back. If your business is already facing hardship, you might want to be very wary of taking out additional obligations that you will have to repay.

However, business loans can be used to renovate and improve your business while overhauling your business model to create a brighter future. This is a step that many business owners have taken when they realize what needs to change but don't have the financing to do it. You will likely work with a lending partner that will require some form of capital to acquire this type of loan.

Investment

The final reason that you could seek business lending solutions is if you want to invest in your business. This could be to reduce overhead, improve production capacity, or help your business scale up. When you invest in your business, this usually carries the expectation that the investment will help your business to become more efficient and more profitable.

If you have been wanting to purchase new equipment, employ new safety measures, hire more employees, or do anything else that will improve the operations of your business, then a business loan could be the solution that you have been looking for.

Choosing the Right Type of Loan

When you are looking for business loans for your organization, it’s very important that you choose the right type of loan. Many larger and even regional banks will offer multiple product solutions designed to meet your exact needs. Utilizing a loan that is meant for your needs and your business is the best way to ensure that the loan accomplishes its goal for your business.

Factors to Consider

When you are choosing the right loan for your business, it can seem to be an overwhelming prospect, especially if you have never done it before. However, there are some clearly defined parameters that you’re going to want to pay attention to if you want to find the best business lending solution. Here are the basics to be familiar with when evaluating lending options for your business.

Interest Rate

The first and perhaps most obvious factor in which loan you choose for your business is the interest rate of the loan. A higher interest rate means higher payments and also much more paid for financing over time. A lower interest rate will mean a more affordable payment and total payment amount. The interest rate that you are offered is outside of your control, but you can always shop around with different lending providers to ensure that you are getting the best rate possible. A mistake with the interest rate could cost your business many thousands of dollars and could even hinder your growth and revenue.

Term

Another important factor to consider when taking out a business loan and determining the right business loan for you is the length of the loan, also known as the "term." This is important because it will determine how long you will pay the loan. A shorter-term will generally carry a higher payment but will result in fewer costs since you will pay it off faster. A longer-term loan will provide the appeal of lower payments, but will also mean that you are taking longer to pay it and interest will accrue more during that time.

Lending Partner

One of the most overlooked parts of securing financing for your business loan is the lending partner that you choose. The lending partner that you choose will play a large part in determining the quality of the products and services that you have access to. You will also want to work with a lending partner that has a reputation for providing fast customer service, flexibility, and affordable interest rates. Securing all of these things in a lender for your business loan will help to ensure that you get what you need out of your business loan.