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Business Loan Questions

What is a business loan?

A loan granted by the bank for the purpose of business is called a business loan. There are various types and sizes of business loans that one may take depending on one’s business needs and requirements. One must follow a specific process while applying for this loan and may get the loan only if it is approved. Given below are some of the most commonly asked questions that have been answered by Experts about business loans.

Will it be easier to qualify for a business loan if an individual has a Limited Liability Company (LLC) with a good credit score?

It may be easy for an individual to qualify for a business loan as a start up if he/she already has a LLC with a good credit score.

Will principal on a loan taken from a relative be deductible?

Any principal amount on a loan, no matter where it is taken from, will be deductible.

Is it possible for an individual who was convicted of a felony to get a small business loan?

It may not be very easy for a person convicted of a felony to get a small business loan. However, the individual may apply with the Small Business Administration guaranteed loan program. If the offense that was committed by the individual is not serious enough or if the charge was at least 10 years old, then the individual may be able to get the loan.

Can an individual get a business loan if he/she wants to buy an existing business?

If an individual wants a loan to buy an already existing business, then he/she may go and check at the bank if they will lend him/her the money. It may be a little difficult to get such a loan as the bank will be looking for a security themselves before approving the loan. Another thing that the individual may try doing is getting money from an Enterprise Finance Guarantee. These schemes have been set up to help people who do not have normal sources of finance due to improper security.

How difficult is it to get a new business loan?

Acquiring a new business loan may not be a very easy task. The individual may go to the Small Business Administration or SBA for the loan. The individual may be able to get such a loan at most banks. He/she needs to qualify for the loan in order to get it. The individual will have to personally guarantee the loan. The individual will also have to have a business plan ready that they may show to the lender while applying for the loan.

Up to what percent can an individual get a business loan against his/her own personal investments?

In most of the situations, the individual may be able to borrow up to 50% of his/her stocks and bonds for a business loan. However, the decision will be taken only after assessing the individual’s ability to pay back the loan.

What steps should an individual follow before applying for a business loan?

Before applying for a business loan, an individual needs to follow the given steps:

The individual must legally incorporate the business in the state in which he/she will be conducting operations. The individual may register the business either as a corporation or a limited liability corporation. However, if the business is registered as a sole proprietorship or partnership, then he/she will be personally liable to the loan.

The individual must have a business plan. The person may also take up classes that are conducted by the small business administration to create a business plan. The plan should indicate the market need for the business, the projection of profit and an analysis of the competitors. A business plan like this will tell the bank that you have done your research and have knowledge about the industry.

Try and get investor financing. One good source for such financing is mezzanine investors. These kinds of investors accept equity instead of repayments.

Request a traditional lender for a loan.

Try and reduce the cost of your loan with the help of a guarantee from the small business administration.

The procedure that is followed to apply and get a business loan can be complicated at times. You need to make sure that you have all the documentation required when you apply for a loan. Sometimes, a loan may be denied just because one of the documents required is missing. You need to be aware of all the rules and regulations involved in the loan process so that you can complete the procedure without any trouble. You may consult an Expert if you have any questions regarding these loans and the loan process.
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