Skip to content

A Guide to Getting Bank Loans For Small Businesses

BY Rachel | 8 September, 2021 | no comments

Bank loans can be a great way to start your new business if you have a solid credit history and a good business plan. If you are looking for an investment-grade loan to fund your business start up costs, bank loans are your best option. Bank loans are available to fund the purchase of equipment and inventory as well as to get working capital and short-term funding for business growth. These loans have been a time-tested and reliable way of funding a small business, yet most banks charge a very high interest rate and most often only lend to companies with significant collateral. In addition, the terms they offer are also very strict and rarely allow a larger amount of flexibility.

For most small businesses, it is usually not necessary to secure a loan from a bank in order to get financing. Most banks will either require a personal guarantee, which is essentially a lien on your home or other property, or they will require a business owner to place their business assets as collateral in the event that they fail to pay back the loan. In either case, you will probably need to use a mortgage broker to find out what your options are for bank loans for your small business.

Because bank loans can be a bit more involved than many people realize, it is important to understand what your loan options are and how much risk you are exposed to in each situation. Unlike some commercial real estate loans, where the risk you carry is based on your credit rating, with bank loans you are generally carrying a much higher risk level. First, if you fail to make your monthly payments, you will lose whatever collateral you used to secure the loan. Second, if you fail to pay back the loan, you will lose whatever collateral was used. As with any loan, you are ultimately asking a company to take a great deal of risk to give you a loan. While this risk may seem great to the company (they got their money), it is generally much less than what they would have to endure if you were to default.

How do you go about getting bank loans for small business? One option is to use your personal collateral to secure the loan. If you have property that is worth something and you are able to repay the loan without defaulting on it, this may be an option for you. In order to qualify, however, you must demonstrate to a bank that you have the income to qualify, as well as the ability to repay the loan. Even if you do qualify, you may end up paying very high interest rates due to the risk of losing the collateral.

Another option is to work with small business finance companies to get bank loans for your business. These lenders typically offer lower interest rates and loan terms than traditional lenders, so even if you have to pay higher interest rates on your business loans, they still tend to be a better deal overall. However, keep in mind that because you are going to be putting up collateral for the loan, you must be able to meet all of the monthly payments on time or your property could be repossessed. This is why you need to have a good credit history and a plan to make sure that you can meet the payments on time every month.

You should also know that even if you do qualify for bank loans for small businesses, there are some lenders who may not offer you the type of financing that you need based upon your credit history. For instance, some lenders will only make loans to small businesses that have a substantial amount of fixed assets, such as expensive equipment or inventory. If you are going to be working with a regular lender, then you will most likely find that you have access to the type of capital that you need, as long as you have adequate collateral to secure the loan.