How To Get a Low-Interest Business Loan in 7 Easy Steps! – As a new entrepreneur, it’s essential to keep your business expenses as low as possible. One of the easiest ways to do that is to secure a low-interest business loan from your local bank or credit union. Although getting approved may take some time and energy, if you take the time to apply correctly, follow up with your lender, and provide all the necessary documentation, you’ll soon have the money you need to get your business off the ground!
Step 1: Calculate the amount you need
When you’re trying to get a low-interest business loan, your first step is to look at what capital assets (if any) are already available. Think about how much money your company already has on hand and how much more funding you’ll need from an outside source.
For example, if your business is starting off with $10,000 that it made selling products last year—and $50,000 worth of sales orders for future production—you may need less than $60,000 in funding overall.
Add up how much you have on hand and then think about what additional equipment/sales staff/etc. you might want or need—and write down those numbers as well. All of these numbers will help when it comes time to apply for a low-interest business loan.
Step 2: Figure out your income, assets, and cash flow
In order to qualify for a low-interest business loan, you’ll need to prove that you can afford and repay one.
You’ll need to demonstrate an adequate income—either as an individual or through your business—and show proof of assets.
Assets may include real estate, stocks, bonds, or cash on hand. You’ll also want to show evidence of cash flow.
This will be calculated by reviewing your history of paying creditors and bills on time; it doesn’t matter how much money is owed but rather whether or not payments are made regularly and on time.
Some banks may even require statements from banks or credit cards you used in years past if they were late with payments.
Step 3: Determine how much equity you have
You can determine how much equity you have by calculating your business’s total assets, subtracting its total liabilities, and dividing that figure by your business’s total value. For example, if you have $500,000 worth of equity and $1 million worth of property and equipment, your business has 50 percent equity ($500k/$1M = .5).
There are plenty of online calculators that will help you figure out how much equity you have for free; just Google equity calculator to get started.
Step 4: Find low-interest business loan lenders
Once you know how much equity you have, it’s time to find lenders. Depending on how big or small your loan is, there may be several different options available to you. The SBA (Small Business Administration) offers loans up to $2 million at an interest rate of around 7 percent—which isn’t bad considering most banks charge between 10 and 20 percent interest on unsecured personal loans. If your loan is bigger than $2 million, then you might want to consider working with a private lender like Lending Club or OnDeck Capital.
Step 5: Consider other financing sources
It’s always smart to seek financing from multiple sources so you have more than one option when it comes time to decide how much money you need.
Before you start applying for a low-interest business loan, see if your bank is willing to increase your line of credit or offer other financing options.
If they aren’t, take that as an opportunity to consider other financing options like credit cards, peer-to-peer lending platforms, or even friends and family who may be able to loan you money.
However you choose to finance your small business idea, just make sure not to carry any personal debt while running your new company; it could really hurt your chances of getting approved for business loans later on down the road.
Step 6: Come up with an exit strategy
While you should always be preparing for success, there are times when it’s important to have an exit strategy after obtaining a low-interest business loan.
This is true especially if you want your business to last for more than just a few years.
If at some point during your business venture, you see that your goals are starting to shift and change, you need to put together an exit strategy so that you can get out of your contract if necessary.
Make sure that every possible scenario has been accounted for and that no matter what happens with one of them, there will always be an easy way out if needed.
Step 7: Set up appointments with banks
Banks are much more eager to lend money than you might think. You’ll need to set up an appointment with a lender or two to get your paperwork and financials sorted out, but once that’s complete it shouldn’t be too hard to secure funding. If you have any questions about low-interest business loans, please post them in the comments below! We try our best to answer all of them as soon as possible. Good luck with securing financing for your business.