Updated: Mar 3
Small Business Loan Tips
I personally don’t know any small business or entrepreneur who has had any experience with a Global Pandemic before Covid- 19.
Even when things are great, the business environment is unpredictable, but from what I've seen, you entrepreneurs have learned to manage and adjust to the “NEW NORMAL.”
Speaking to local businesses and our entrepreneurial friends, the consensus is that Covid-19 has exposed some cracks in the foundation of many businesses, Big or Small.
Most of these cracks may never have become apparent in the most normalization of times, but the Covid-19 stress test exposed them.
So Now What?
A small business loan helps entrepreneurs and professionals grow their businesses. Whether you operate on a low budget and need more cash flow, want capital for new investments, or look to make renovations, a loan can improve your business.
During Covid, the CEBA (Canada Emergency Business Account) works with Canadian financial institutions, including banks and credit unions, to deliver Small Business loans. The $40,000 loans have zero-interest and are partially forgivable (25 percent) if repaid by December 31, 2022. The CEBA is meant for businesses that have experienced diminished revenues due to COVID-19, and face ongoing non-deferral costs such as rent, utilities, insurance, taxes, and employment costs.
When it comes to obtaining a business loan, it takes some preparation to set yourself up for success. Make sure you steer your company in the right direction from day one. lenders look at two things when it comes to loan applicants: personal finances and business profits. Before you reach out to lenders, improve your credit score, pay off debts, and organize accounting records.
2. Have an idea of your risk
Lending money to small businesses is riskier than large corporations, which is why small businesses have a tough time securing loans. Here are some things that a bank will look at which will decrease your chances of obtaining a loan.
Little Collateral, low profits, new business, unorganised records, poor credit history
3. Save money before taking on a loan
You don’t want to get a loan and then be unable to make repayments. One of the most valuable small business loan tips to keep in mind is to keep a cash reserve for loan payments. Set some money aside in a business savings account to stay on top of payments.
Lenders often look at where repayments will come from before giving businesses a loan. Saving for repayments protects you from needing to use personal property as collateral.
4. Understand different loan types
The more you know about business loan types, the better chance you will find the one you need. The best way to get a business loan will depend on your unique situation and the type of loan you’re pursuing.
Term loans are lump sums that you pay back (with interest) over a set amount of time.
SBA loans are flexible term loans endorsed by the Government of Canada, Business Grants and Financing.
Short-term loans are like term loans, but you pay them back in a shorter amount of time.
Long-term loans are larger amounts repaid over a long period with low interest rates.
Business lines of credit only need to be repaid if you use the money.
Equipment financing covers new and used equipment.
5. Establish relationships
It can be difficult for new small businesses to get a startup business loan. You can’t show proof that your business will be profitable, making you a larger risk to lenders.Forming relationships with lenders early on will increase your chances of obtaining a business loan. Take advantage of what banks can offer your company, including business bank accounts and credit cards. The more you work with your bank, the better lenders get to know you, establishing trust.
6. Do your research
There are a lot of different small business loans available. Look at several lenders to find the one that is right for your business. Look at what each lender may offer in terms of types, rates, and terms.
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