Funding

Funding

Serving the Farming Industry

 Having sufficient funding enables your business to seize any opportunities that arise, such as making an investment in new products and services which can contribute to its growth. Cash flow can function as a safety net for businesses in times of financial need.

 So how do you apply for a loan or funding?

You first need to understand a few things before applying for funding and these are as follows;

1. Determine the type of business loan you require

Loans are one of the most common ways for businesses to raise capital, but the process can be intimidating for first-timers. There are numerous business loans available on the market, but not every loan is suitable for every type of business.
Term loans
Term loans are the most common type of loan. This business loan is available in virtually any amount. You borrow a lump sum for a specific purpose and repay the loan, with interest, in equal monthly payments over a predetermined period of time. This loan’s terms, including interest rates and payment terms, will be determined by your financial standing.
When applying for a loan, established businesses may be able to rely on their financial history, whereas newer business owners may be required to provide their personal financial standing. Term loans frequently require collateral, such as real estate or other assets, that the lender can seize if you default on your payments. Likewise, repayment on term loans typically commences immediately. Both banks and non-bank lenders offer term loans. Banks will require a high credit score and provide loans with varying interest rates and terms. Typically, private lenders will accept low credit scores in exchange for high interest rates and brief repayment terms.

Government-backed Small Business Administration loans

Small businesses may apply for Small Business Administration, or SBA, loans. These loans are provided by private lenders, but the federal government guarantees repayment in the event that the borrower defaults. Typically, lenders offer lower interest rates and more flexible loan terms. However, SBA loans require a lengthy and rigorous application and approval procedure. These loans require collateral as well. While the government guarantees repayment to the lender, you must put your personal assets at risk in exchange. 

The Small Business Administration offers additional loan options for exporting, international trade, and disaster relief. Up to ten years are available for loans for working capital or equipment, and up to twenty-five years for real estate. SBA loans, like term loans, require a financial history, so not all loan options are available to new businesses. Review the SBA’s eligibility requirements to determine your eligibility.

Credit cards or lines of credit for businesses.

Credit differs from conventional loans in that it functions more like a credit card. Instead of receiving a lump sum on which you will pay interest, you will have access to a line of credit and will only pay interest on the money you use. Many view credit as a more convenient, secure, and adaptable alternative to a fixed-term loan. They are readily available from a variety of lenders and frequently do not require collateral. Typically, credit lines are used for short-term financing, as opposed to long-term projects. Although credit terms and amounts vary, many lenders cap financing at approximately $250,000. Some creditors may still require a financial history of the business. Thus, banks may have difficulty extending credit to new businesses. If a business does not qualify for a line of credit, it can cover ongoing expenses with a credit card, which is easier to obtain but has higher interest rates and fees.

Personal loans

Obtaining a loan is typically challenging for new businesses. To avoid this, many new business owners obtain a personal loans. These are similar to term loans in that the borrower makes fixed monthly payments. The majority of personal loans are unsecured, so you will not need to provide collateral. Also, they are typically unrestricted, so you can do whatever you want with the money. Personal loans appeal to numerous types of entrepreneurs due to their speed, adaptability, and relatively simple eligibility requirements. However, personal loans may be a riskier option than term loans for businesses, which provide legal protection. You must put your credit score on the line and assume the risk associated with a personal loan.

Microloans

The SBA and other lenders offer microloans to newly qualified businesses with a need of less than $50,000. Numerous NGOs provide microloans to businesses that address issues such as education, equality, and the environment.

2. Determine whether you are eligible for a business loan

Every company needs operations and maintenance funds, yet not every company can secure these funds through a loan. To obtain a business loan, you must consider your financial status, credit score, collateral options, and business type. Ensure that you comprehend the terms and conditions of the desired loan before applying.

How young is your enterprise?
Every lender will be interested in your company’s economic and operational history. Obtaining a loan may be more challenging for new entrepreneurs. If those who are launching a new business can heavily rely on their own financial history, they will have a greater chance of obtaining a personal loan. Less risky for lenders, new businesses may also have success obtaining short-term financing through a business credit line or credit cards.

Your credit score?
Regardless of the kind of commercial loan, all financial institutions will seek to minimize their exposure to risk and recover their expenses. Before lending, they will require proof of your financial standing. In general, the higher your credit score, the better the loan terms you’ll receive. On the other hand, if lenders perceive you to be a greater risk, they will require larger collateral, shorter time history, and greater interest rates.
A good credit score is required to obtain a conventional business loan. A minimum credit score of 680 is typically required for a bank or SBA loan. If you have a low credit score, you may still be able to obtain a loan, but your options and terms will be more limited.
If your credit score falls between 600 and 680, you may want to consider online term loans or lines of credit.
It is more difficult to obtain a loan if your credit score is below 600, particularly if you are a new business with no track record. You may still obtain credit or other short-term loans, however.

Which industry do you serve?
Obtaining a loan may seem unrelated to your line of work, but lenders view some industries as more risky or lucrative than others and use this information to determine risk.
However, even if your credit history or personal finances prevent you from qualifying for traditional loans, you can work with lenders who specialize in your industry. Additionally, some non-governmental organizations (NGOs) and private organizations provide financial assistance to businesses working on particular causes, such as sustainability, human rights, or environmental concerns.

Have you developed a thorough business plan?
In addition to examining your business’s past financial performance, lenders will also evaluate the company’s future to determine its risk profile. To secure a business loan, you’ll need a comprehensive business plan that reassures lenders of your ability to repay the money.
A proper business plan includes monthly or quarterly projections of income and expenditures. It should also contain a thorough description of your operations, marketing strategy, and market analysis.

Can you provide collateral?
Some lenders will require you to pledge an asset as collateral to ensure repayment of the loan. If you default on the loan, the lender will assume ownership of the provided asset. Collateral can consist of assets such as real estate, equipment, inventory, or cash.
In addition to reducing the lender’s risk, collateral may also result in more favorable loan terms. While you can receive a loan without collateral, your lender may require you to sign a personal guarantee offering your personal assets as collateral. To reduce your personal risk, you should ensure that you can repay a business loan prior to applying for one.

3. Investigate prospective lenders

Today, numerous lenders approach businesses with a variety of loan types, amounts, terms, and conditions. Many believe that commercial banks, such as Citibank and J.P. Morgan, are the most conventional business lenders. If you qualify, they can offer reasonable terms for loans of any size, whether business or personal.

However, the approval process is typically longer and more stringent than with other lenders. Local banks can also provide smaller loans to small businesses. Many local community banks offer loans to local businesses on favorable terms.
Additionally, online lenders have become one of the most popular ways to obtain a business loan, particularly for startups. Numerous websites allow you to compare options and connect with lenders offering varying terms. Direct online lenders generally have the simplest application procedures.
For smaller loans, businesses may also wish to investigate peer-to-peer lending. Platforms such as SMBX connect small businesses with private lenders and investors offering various forms of financing.

4. Compile financial and business records
Regardless of the loan type, amount, or lender you choose, you will need to organize your documentation before applying. Your lender will request common documents such as bank statements and tax returns for your personal or business accounts. You will also need to provide credit reports, although the majority of lenders will have access to your credit report.
If your business is already established, you will be required to provide financial statements, such as a balance sheet and cash flow statement. Instead, new businesses may be required to provide a detailed business plan with financial projections.
Lenders will also require legal documentation such as your federal tax identification number, state filings, etc. Some lenders may require additional information, such as potential collateral, or a certified public accountant (CPA) to review and audit your financial statements.

5. Request a business loan
Before approaching your preferred lender, you must be aware of the desired loan type, size, and purpose. After organizing your information, you can apply for a loan with confidence. Before committing, you must understand the terms and agreements if you are approved by your lender.
You will also need to know what reports you must file, any restrictions imposed (such as a minimum cash threshold your business must maintain), and the circumstances the lender deems as loan default. Notate the interest rate and any additional charges, the payment duration and instalments, and any penalties, such as those for early payment.
Lastly, prior to entering into an agreement with any lender, you should conduct your due diligence and verify their standing in the industry and with clients.

Please click on the following link to speak with one of our agents who will personally guide you through the process if you have followed the steps outlined above and your proceedings have not been successful