Your Bank Loan: Ten Things to Think About

Most small businesses will need financing at some point during their existence. Businesses typically need start-up financing, but a business may also need financing after it has been operating for months or years. For example, it may need a major infusion of capital in order to hire new staff or expand into a new office space. There are a few options when it comes to funding your business venture. A common option for businesses to come up with money is a bank loan. This article provides some questions to consider when deciding whether or not to apply for a bank loan, as well as an overview of other options to help you finance your business.

Considerations When Applying for a Bank Loan

Bank loans are a common way to get an influx of cash to start or continue running your business. Although the information and documents for a loan application will vary depending on the particular bank, generally banks will want to see your business plan. Of course, the burden of having an outstanding loan can be stressful, so it's important to weigh the benefits and drawbacks of taking on bank debt. Below are 10 things to think about when you're applying for a bank loan.

1. Is the loan secured or unsecured?
2. If the loan is secured, what does the bank require for collateral?
3. Is a cosigner required?
4. Is a personal guaranty required?
5. What is the interest rate, and is it fixed or variable?
6. What fees will the bank charge?
7. When does the loan mature (when does it come due)?
8. What are the terms of repayment?
9. Is it a line of credit or term loan?
10. What documents will you need to provide to the bank during the term of the loan?

Answering these questions can help you decide whether or not a bank loan is the best option for your business. These questions can also help you compare bank loans to obtain the best loan suited for your needs.

Other Options for Financing Your Business

If you don't want a to take out a bank loan – or need more money than you can get from the bank loan – there are other options to fund your business. For example, the U.S. Small Business Administration (SBA) has four basic loan programs: the 7(a) Loan Program, 504 Loan Program, Disaster Loans, and Microloan Program. You may also be able to take advantage of any state or local financing programs. If you happen to belong to a credit union, you may be able to borrow funds from it, which can be a more simple procedure than getting a loan from a commercial bank.

Another option for obtaining funds for your business is to ask friends and relatives. Although this is easier than obtaining funds through formal methods, it does have its drawbacks. For example, you may put your friends or relatives in an uncomfortable position if they don't want to loan you money. Also, if you're unable to pay back the loan on time – or at all – this will likely put a strain on your relationship. You can also use a credit card to finance your company, although this is a particularly risky and costly option.

Getting Legal Help

If you have questions about bank loans, or would like to find out more information about other options for financing your business, you may want to contact a local business and commercial attorney for guidance.

For more information and resources related to this topic, you can visit FindLaw's section on Business Finances.