What to know before applying for a business loan

Getting a business loan can be either hard or easy depending on the lending institution, amount requested, your application, and more. However, to make the process much easier, there are some core things to know.

From the requirements requested by lending facilities, the documents to be submitted, analyzing the reasonability of the interest rate, etc; these are crucial factors to consider when getting a loan.

In this article, we will examine what a business loan is, what to know before applying for a business loan, and the reasons that justify getting a business loan. Let’s get to it.

What is a business loan?

A business loan refers to money issued to a business by an external source to be paid back, with interest after an agreed-upon time. Loans are gotten for various reasons such as to fund business operations, purchase equipment, and hire and train staff members.

Now, a business loan is not a grant as it needs to be paid back with interest, and the interest rate depends on the lending company. Getting a business loan is great for many reasons as it can help you tap into an opportunity when you are low on cash or to fund expansion projects that will yield great returns long-term.

Reasons that justify getting a business loan

According to a 2022 report on small business credit survey, it was discovered that 62% of small businesses request loans to cover their operating expenses, 41% for business expansion and to acquire business assets, and 29% to make repairs or replace capital assets.

While these are great reasons to apply for loans, there are some unjustifiable reasons not to get a loan, such as to pay for another loan, to finance an untested business idea without solid market research, etc. Here, we’ll examine some reasons that justify getting a business loan:

1. To cover operational costs

You can get a business loan to cover business operational costs in seasons when revenue gets low. This is key to keeping your business running and gives you a second chance of getting things on track. Examples of such operation costs include rent, utility costs, marketing costs, etc.

2. For business expansion

Business expansion is one of the significant metrics that indicate business growth; however, funding is usually needed to make it happen. Whether your present store has become too small for your business operations or you’ve seen an opportunity to expand to another viable location where the business can grow, a business loan is a great idea in situations when you have no cash to finance such an expansion project.

When taking a loan to finance a business expansion project, it is best to do a revenue forecast to be sure that you can cover loan repayment whilst still making a profit.

3. To purchase, upgrade, or replace work equipment

Getting equipment that makes work easier and faster is a worthy investment to get a loan for. Whether it’s a new purchase, replacement, or upgrade, equipment financing impacts your business bottom line significantly, and the equipment can serve as collateral for the loan.

For a growing business, focus on the core equipment needs of the business and not just nice-to-have tools that don’t make much impact.

4. To get more inventory

For product-based businesses, inventory is the soul of your business. So, getting a loan to keep your store stocked with quality products is a great financial move, especially in seasons when the business moves faster.

However, before taking a loan, carry out a sales forecast based on past experiences to determine if the projected sales will outweigh the debt, enabling you to pay back easily.

5. To fund an opportunity that outweighs the loan cost

You can also apply for a business loan in situations when you get a juicy opportunity that far outweighs the loan costs. For example, if you land a big project requiring you to supply many products. In this situation, getting a business loan will be a great move if you don’t have the cash to fulfill that order.

However, in situations like this, calculate well to know the true costs of the project and the estimated profits to avoid making mistakes due to over-enthusiasm.

Get a collateral-free loan from us within 48 hours to fund that business project.

What you need to know before applying for a business loan

Having explored what a business loan is, let’s examine the key things to know before applying for one:

1. The types of business loans there are

The first thing to be aware of is the kinds of loans that exist to help you decide the right one your business should go for. Let’s examine various loan types your small business can choose from.

• Microloans: Microloans are given to underserved business owners to help them start and grow their businesses. These loans have low or no interest, and their requirements are not as stringent as other types of loans. Apply here to get a microloan from us.
• Secured and unsecured business loans: Secured loans require collateral before they are given, while unsecured loans do not need one.
• Business line of credit: This is a short-term loan that gives you access to an amount of money you can withdraw from. You are only required to pay interest on the amount you withdraw from the amount given.
• Business term loan: Term loans are the most common kind of business loan where you get a lump sum amount and are required to pay a percentage interest on it over a specified period. Repayments can also be made in installments, and they require collateral.

Based on the definitions above, you can decide the best loan to go for. However, we suggest microloans as the best for small businesses.

2. The documents you need

After deciding on the best loan to go for, you need to prepare essential documents that the lending company may require you to bring. Some of the documents requested include a plan on how the loan is to be used, your business plan, financial plan, cash flow statement, balance sheet, income statement, tax return documents, and more.

Make these documents ready in advance to make the application process smooth.

To get funding from Triift Africa, all you need to do is fill out a form and provide the required details, and your loan gets processed within 48 hours. Apply for a business loan now.

3. Duration of business operation and size

Some lending institutions also consider the duration for which you’ve been operating as a key factor in deciding if you qualify for a loan. Typically, businesses operating for at least 6 months get approved for loans, depending on the financial institution you are borrowing from.

Also, in some cases, the size of your business doesn’t matter, whether you are the only employee or you have team members running the business with you. The most important thing is to make a solid case for why you need the loan with the required documents to back up your application.

4. Other requirements depending on the lending institution

Other requirements that may be requested include collateral to secure the loan, guarantor, etc.

Generally, lenders also consider factors like the need for the loan, your creditworthiness as a borrower, and your ability to pay back the loan in the specified timeline.

Other key things to pay attention to include loan interest rate, interest rate to profit margin, terms and conditions, maturity period vs turnover time, repayment plan, and more.

Get a business loan from us

Applying for a business loan can seem like a huge task, especially with the outrageous interest rates of some financial institutions, the long-winded process involved, and the difficulty in even getting access to one. This is why we are passionate about solving this problem for MSMEs in Africa, including your business.

Triift Africa makes it easy for you to start and grow a micro business by providing you with collateral-free micro-loans, a peer-to-peer learning community, and resources to scale your business to its highest potential.

Need a growth loan to take your business to the next level? We are excited to speak with you. Fill out this form or visit our website www.triift.africa.