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Business loans can be lifelines for businesses of all sizes, assisting them to cope with seasonal fluctuations in sales or unexpected expenses. They can also be used to invest in new equipment, inventory or even a new location. It is important to make use of the funds in a wise manner to grow your business without relying on financing through debt.
Before you apply, determine the amount of capital your company requires and which loan is best suited to meet those requirements. It is also important to be aware of the time you’ll need to repay the loan, since this can affect your rate of interest and fees. A lot of lenders offer one-time financing or a line of credit with repayment terms ranging from a few weeks to several years.
You will need to provide a number of documents, such as your business plan, financial statements and credit history. They may also request collateral, including equipment, real estate or money owed by your business (accounts receivable). Some lenders will waive these requirements for existing customers or those with excellent credit and seeking large amounts capital.
The lender will also consider whether your business has the capacity to repay the loan using metrics like its fixed-charge coverage ratio, as well as the amount of cash it is likely to generate every month. They will determine if the company has any outstanding debts as well as assess its compliance with all legal requirements. They will also examine the field you work in to determine if it’s stable or volatile.