First-Time Small Business Loans: 10 Do's & Don'ts
August 4, 2023
Whether you’re starting a business from scratch or want to expand your company, a business loan can fill in the funding gaps. However, some best practices may help you maximize your money and get the right funding fit.
Consider each of these before you apply to give your business the best possibility for growth.
5 Dos of First-Time Small Business Loans
Are you looking to secure a loan soon? Check these must-dos off your list.
1. Do Know Your Credit Score
Credit scores matter. They determine the amount you can borrow, the terms of your loan, and how much you’ll pay in interest. A better score opens doors to larger loans with better rates, but building a business score can take time.
Knowing both your personal credit score and any business score you’ve established helps you know what you may qualify for. If you don’t feel it’s high enough to get the loan you want, you may still have time to improve it before officially submitting your application.
2. Do Work with an Expert
A small business loan comes with many requirements, including knowing when and how to apply for each type of loan. For example, a Small Business Administration (SBA) loan has different rules than the term loans you find from startups online. A financial professional with experience in business lending can help you identify the right loan for your needs and tell you what you can expect when applying. They may also guide you through the paperwork, saving you time so you can put your best foot forward.
3. Do Borrow Just What You Need
Do you qualify for more funds than you need to meet your goals? It may not be worth accessing the full amount. You’ll pay interest on money that wasn’t necessary, and some lenders will charge you extra fees if you try to pay back your loan early.
To save the most money possible, get a loan that closely matches the amounts you'll spend – no less and no more.
4. Do Create a Realistic Budget
You likely already have a budget set for your business. These numbers play an important role in picking a loan and planning for repayment. When making a case for your business loan, you’ll need to refer to this budget to help the lender. You’ll also need to know how your new loan payments will affect this budget and be prepared to show that you can keep up with expenses.
5. Do Prepare Before the Application
When do you hope to get the loan payment? If you need the money by a specific date, you’ll want to start the loan research and paperwork long before that time. Even if things go smoothly, there will be reports to create, tax paperwork to pull, and plans to make for how you’ll spend the money. Depending on the type and amount of the loan, the entire process can take a month or longer.
5 Don'ts of First-Time Small Business Loans
Avoid these common mistakes to get better loan results.
1. Don't Underestimate Your Expenses
Your budget already includes historical accounts of what you spend, and these expenses should be adjusted for how they may change in the future. Consider things like the cost of supplies, labor, marketing, and how changing market rates can affect the interest on a variable-rate loan or business line of credit. Add some wiggle room in your budget so that you can easily cover loan payments, even if things become more costly.
2. Don't Overestimate Your Income
On the other side of the coin is your revenue, which can be easily distorted to appear in your favor. Some business owners may project high if they feel they must present a positive outlook to motivate those around them. However, estimating too much income can make it hard to adjust if things don’t go your way. The loan payments come due no matter what, so be conservative in your projections so you don’t miss the mark and not make enough to repay your funding.
3. Don't Borrow Without Reason
All loans, no matter how affordable, come with a price tag. Interest and fees can be worth it if it helps your business grow. However, if you don’t need the money, it might be a good idea to wait. Knowing the right time to borrow is a personal decision with many factors to consider, including the current interest rates and the cost of waiting if you miss an opportunity.
4. Don't Rush
Preparing for your loan application can help speed it along, but borrowing should still be carefully considered. If you need to get money quickly to solve a problem, you may be tempted to cut corners or settle on the first loan products you can get – rather than the one that’s best suited for you. By taking your time, you can reduce costly errors and have time to evaluate all the options before you.
5. Don't Be Afraid To Ask Questions
Business loans aren't exactly like business credit cards. If you don’t understand something or want more information about the process, speak up! Whether you talk to your lender or another financial professional, get those questions written down and answered before you continue through the process. You won’t be judged for your inexperience. Learning the hows and whys of lending can also equip you for future lending opportunities.
Choosing the Right Lender
There are many options for borrowing. A loan officer with experience helping small business owners will be familiar with these do’s and don'ts and ready to assist when needed. Whether you need a loan now or are just browsing for a future product launch, reaching out to your lender now can make all the difference when submitting that loan paperwork.
Centier Bank's team of helpful lending professionals knows business because it’s their business. Reach out today for more information.