When it comes to doing business, navigating through the world of loans can be a complex and complicated process. At one time or another, every business will require working capital in order to take the next step or address an emergency. Whether it is to tackle company needs for a business’ future, expand operations, upgrade or replace infrastructure and equipment, refinance debt, or deal with an unforeseen emergency, it is important to analyze what the best options may be for the health of the company.
To begin, if you are looking to secure a business loan, you will need to decide from whom you would like to secure that loan. Obtaining a business loan from a credit union offers several advantages over traditional financial institutions. As a not-for-profit corporation, account holders are recognized as members and not merely customers as they would be at a standard bank. One of the many benefits of a credit union is that profits generated are reinvested into the credit union, enabling the credit union to offer extremely competitive interest rates to all members looking for financial products.
“As a business owner, you first have to evaluate and analyze what the best type of loan you will need since each has a specific set of requirements, terms, liabilities, and limitations,” said Thomas Perri, Suffolk Federal’s Assistant Vice President of Commercial Lending. “It is important to understand the types of loans that exist and what may be the right option which will address your requirements in the most cost-effective manner,” he added.
When it comes to growing your business, the commercial specialists at Suffolk Federal offer local decision-making and a fast turnaround to highly individualized loan packages. There are several types of business loans to consider from the credit union, all with no pre-payment penalties, including:
- Term Loan: An application for a specific sum of money. Once the application is approved, regular payments or installments are required on a scheduled basis.
- Business Line of Credit: An additional credit limit from the business account. A business owner can use the line of credit as needed up to a preapproved amount for expenses, with interest only being applied to the amount used. Rates are typically higher than for a standard loan since there is more of a risk for default.
- Small Business Administration (SBA) Loan: A loan through the Small Business Administration with generally lower rates and positive terms. This is a secured loan administered through an entity such as a credit union with a lengthy and detailed application process.
- Business Credit Card: For qualified business members, a business credit card s meant to be used in the same way as a personal credit card.
- Commercial Real Estate Loan: Can be used to purchase land or an existing building, make improvements to a building or finance an existing commercial mortgage.
The application process is an extremely important and involved step in the process. “The application process for a business loan will vary by lender, however, there are certain requirements that are always considered by all,” said Perri. “Some lenders may offer flexibility with meeting or exceeding the minimum requirements; therefore, it is important to understand the qualifications and be able to address them from the beginning in order to be recognized as a strong applicant.”
Understanding the criteria needed will also help ease the process, including saving time and frustration. Credit reports of the business and any owner with at least 20% stake will be required. Taking the time to review the business credit score, address any issues and pay down existing debt will better the chances for approval.
Meanwhile, understanding the business and industry is key. Supporting the application with a strong business plan outlining several years of past and projected applicable financial statements, including collateral and assets places an applicant in a strong position. Generally, a year-to-date profit and loss statement will need to be provided in order to show that the business is profitable. Additionally, a market analysis of the industry that the business will serve along with a statement of experience will be needed. Many loans will also require the business to have been established for at least two years in order to visualize long-term success. If a business is less than two years old, then offering a business plan showing revenue growth can assist in placing the application in a positive light.
“By preparing your checklist of requirements in advance and completing the necessary homework, you can apply with ease and increase your chances to qualify for a loan,” said Perri.