How To Establish A Business Loan For A Small Business

Today there are many different sources available for business loans. Gone are the days where business owners were dependent almost entirely on banks or loans from friends and relatives. Loans typically come in three primary forms.

First there are short-term business loans that provide capital for a business in need of cash to start operations. These loans are generally for one year or less.

Next are the intermediate term loans that help start-up businesses pay for equipment and cover large initial expenses. These loans are usually for anywhere from one to three years.

And last are the long-term loans that are used to assist start-up businesses with initial costs such as equipment, furniture fixtures and commercial mortgages. These loans are generally from three to seven years and repayment is usually made in installments.

It is important that you have a clear understanding of what the loan will be used for and how you can best present such information to a lender. It is equally important that you have a realistic plan for repaying the loan.

When working on a loan request, you should include the following and most likely most of this will already be in your business plan:

• The purpose of the loan

• Specifically how much money will be needed

• A management profile

• An overview of the market and the projected customer base and competition

• Personal and business financial statements

• Collateral that can secure the loan

Mistakes To Avoid When Applying For A Business Loan

When applying for a business loan there are common mistakes that can hinder the process. Let’s take a look at some of the most common ones.

Avoid applying only to the most convenient lender. Be sure to shop around and you should consider what the Small Business Administration could do through one of their loan programs.

Be sure to have your finances up-to-date. This is an area where people often try to get a loan without having the proper financial documentation. Make sure your papers are ready for showing before moving forward. Always know what your credit rate is before applying for a loan because you need to know where you stand.

Interest rates are always changing and if you’ve found a good rate, lock it in before it goes up. Too often, people make the mistake of getting greedy.

Read and reread the terms carefully before signing. In your hast to get a loan, you may miss an important detail that will haunt you later. Also, ask questions about anything you do not understand fully.

You should have some of your own equity in the project. By doing so this will enhance your chances of securing a significantly better business loan.

Be careful in making major changes just before asking for the loan. Just as you do not want to open and close credit cards before applying for a personal loan, you do not want to make significant personnel or other changes to your ongoing business structure before applying for a business loan.

Lenders want to be able to see stability in how you do business and with whom. If you go into see the lender with all applicable supporting data, including financial paperwork, your plan and design, you will feel good knowing that you are prepared.

Why Do Lenders Sell Their Loans?

Lenders sell their loans for variety of reasons, but usually to get cash in order to make more student loans. The loans are mainly sold to other lenders and organizations in a “secondary market” made up of state and private organizations that specialize in buying and servicing these loans.

Some lenders and all secondary markets have contracts with student loan services, which are companies that take care of all the details, like collecting and processing payments, handling inquiries and maintaining loan records.

This not only happens with student loans but to all types of lenders dealing with loans. One of our homes changed mortgage lenders three times within a period of six years that we lived in that home.

Asking the question of whether a lender will sell your loan is the wrong question to ask. The question you need to ask is whether or not the new lender will offer the same benefits and terms. It really does not matter whom you make the check out to.

What Happens When My Loan Is Sold or Transferred?

You will receive a letter from the lender who is selling your loan. When the loan is actually sold, the new owner or its servicer will send you a letter that explains why the loan was sold, who the new owner is, where to send your payments and where to call if you have any questions.

The letter will include a statement listing the loans they are servicing for you, the dates you took out the loans, the interest rate, the names of the loan programs, and the total amount you owe.

The new owner or its servicer (a servicer is a loan service/company that works for many lenders and secondary markets at the same time) may send you a new payment book or may offer you some services that were not available from your original lender.

You are now indebted to the new owner of your loan, no longer to the original lender that you signed papers with. There should in no way be any change in the rate and terms of your student loan.

There will be that question and concern with any new lender if any changes have been made. As soon as you obtain the name of the new lender, I would ask in writing for a guarantee of your former benefits you received with your prior lender.

There rarely is a problem, however, this might make you feel more secure. Also, if there is a problem or if you have any questions you would like to discuss with your College Board loan, call 888-272-5543.

Read your first statement from the new owner carefully and make sure that the information is up to date. When a loan is sold, it can take up to 60 days for your payments to be forwarded from your original lender to the new owner.

Call your new servicer if you are having difficulties in anyway. They are there to serve you and are glad to have your loan. Let’s face it, that’s their job and how they make their living.