Securing long-term loans for your business is a competitive and tedious process. There is a substantial amount of paperwork involved along with an understanding of some financial jargon. Long-term loans for your business are best suitable when you make a capital investment that you know will last at least more than 10 years. These secured or unsecured loans are generated for a period anywhere between 3-20 years, depending on the nature of the company and its purpose. Before you approach a bank for a long-term loan, prepare yourself well to make the process easier. Below are some guidelines for small business owners on how to secure a long-term business loan.
Check Your Credit Scores
Apart from your business credibility, you will need to show excellent personal and business credit scores. The creditworthiness report gives the lender a good picture of how reliable you are when it comes to paying back a long term loan. They check your credit card payments, any additional debts, default payments, etc. A credit score of 700 is sufficient to secure an SBA loan.To show the bank that you are a reliable borrower, keep a track of your credit scores and pay any dues on time. With many individual lenders, your company serves as a collateral and so, they may request your credit reports but not pay strict attention to it.
Create A Convincing Business Plan
Before you meet your lender, get the basics of your company in order. For example, you know for sure they will need the fundamental information such as the name of business, amount of loan requested, business structure, name of the executives, etc. Preparing all this information well in advance saves time to get financial help faster. Next, create a great business plan. The bank or lending institution would like to know what your company stands for and what some of your goals are. They would like to dig a little into your business history too. Primarily, they want to assess your financial credibility and know your company makes sufficient funds to pay the loan back. Organize the documents they may require for pursuing this research.
Gather Required Documents
Bank or the lending institution will need some basic documents to get an insight into how well you manage your finances. A bank statement is the first document they would like to see. Also keep in order your profit and loss statements, balance sheets, business licenses, and personal and business tax returns. Each document will be reviewed carefully so before submitting you can go over them with your accountant. It may be time-consuming to get a bank to scrutinize all these documents. If you need a long-term business loan as soon as possible, you can consider asking individual, online lenders who do not undergo as much rigmarole. However, they may request higher interest rates and down payment money.
Prepare Collateral Documentation
A collateral could be anything you put at stake for the lender’s sake. This is required by most lending institutions as a security for repayment of loan. In case you default or your business goes bankrupt, the lender can claim the collateral instead. A collateral could be your company equipment, property, etc. that has potential cover value to pay the lender in case of an adversity. This is very common in bridging loan agreements. Any lender would be primarily concerned about borrower’s repayment capacities. So besides the collateral, some lenders may request the borrower’s personal guarantee to relinquish a certain portion of the business to the lender. Your creditworthiness and business prospects are at stake in such a scenario.
Compare Different Lenders
First, analyze the compatibility of the loan offered to your business requirements. Ask the lender all the important questions such as default penalties, collateral requirements, interest rates and the payment due date. You can also clarify whether the interest rates may vary depending on time. Use these answers to compare different lending institutions you approach. Each lender will have different requirements and eligibility criteria. They may all ask for your credit scores and financial documents but the minimum on each will be different. You can use this knowledge to pick the right lender for you.
Being well-prepared helps you get a long term business loan quickly and efficiently. Knowing the bank’s requirements will aid in gathering all the materials and paying attention to any fluctuations in your credit scores. Create a viable business plan that answers all the necessary questions about it. Banks would generally require both, your business and personal financial statements because they would like to assess any additional income. Consider what you might stake out as collateral property. Even though you may have an excellent credit score and are on top of all payments, banks require a safety net anyway.