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Application form  for a small business loan with stack of 100 US dollar bills and calculator
The world of acquiring finances for a small business has changed and the process of getting a loan can be quite nerve racking. The initial phase prior to getting a loan requires you to know which documents to prepare, how much financing to ask for, and, most importantly, which lenders to approach. The following are some of the steps that you need to know about in order to qualify for a small business loan.

Establish Why You Need a Small Business Loan 

Identify why you need the money and pin down the list of reasons on how this loan will help your business. There can be various reasons such as getting a loan to launch a new business, buy an existing business, purchase a piece of equipment, or for your day to day working capital to pay for marketing or human resource costs. Moreover, you may need the loan to cover your cash flow gaps or perhaps an opportunity has arisen to expand your existing business. The key is to recognize and evaluate your reasons as it will help you to decide the choice of the lender and loan type.

Determine How Much Financing You Require and How Much You Can Afford

 A small business loan can be helpful in many ways, but it is essential to know the amount of capital you need in order to achieve your business goals. It inevitably does not have to match up with how much you can afford. You can use a business loan calculator that will help you evaluate the monthly expense of your loan, which is essential to know before you sign a loan agreement. Another way to find out how much financing you need and how much you can afford is to conduct a loan performance analysis. By conducting this analysis, you will able to calculate the correct amount to move ahead with your business loan.

Explore Diverse Types of Business Loans

Find the right loan. Choose a type of business loan based on your needs. The key is to know which type of loan matches with your credit score, your budget, and the reasons why you need the financing in the first place. You can get small business loans from several places including banks, financial institutes, micro and online lenders. 

Furthermore, common types of bank loans include equipment financing, short term loans for 2-3 years, or long term commercial loans which are usually secured by real estate. One of the most common loans among small business owners is a line of credit. They make a great security net in case of an emergency, thus offering an amount of capital that can serve as a cushion for your cash stream.

Collect All Loan Documents

Once you have compared your options on the different types of business loans, it’s time to put your documents together. Depending on the bank and type of loan, you will need to submit a combination of documents such as business and personal bank statements, tax returns, annual revenue, financial statements (balance sheet, profit loss statements) and other legal business documents. The best thing you can do is sufficiently organize all of your documents to submit with your loan application and be as prompt as possible.

Apply for your Business Loan

Once you have prepared all of the documents, you can submit your loan application. It is advisable that you don’t apply for more than one or two loan types as this will affect your credit score in the long term. After you have submitted your loan application, it will take a while for your lender to review all of your documents and verify the authenticity. Once your application is approved, before signing any papers, make sure that your lender informs you about the loan and its complexities. 

For small businesses, getting a business loan is often a difficult obstacle to overcome, mostly due to tight lending principles made by banks. Although applying for and getting approved for loans can be tricky, if you prepare your application well, the probability of receiving the loan amount will be higher.

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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

 

Amortization text on blackboard with businessman on side
Loan amortization means paying off your balance over time through regular payments distributed over a certain period of time. The term is generally associated with paying off loans, however, amortization has wider applications in accounting terms and can be applied to a wide range of balances. Each monthly payment for your home or auto loan may appear to be the same. However, it never is and is made up of several parts, which change over time. As you reduce your loan balance, also referred to as loan principal, the interest rates, which are initially very high, come down gradually, resulting in lesser interest payments for each month.

Loan amortization for long-term loans would generally include high-interest costs at the start and, as more and more amount goes into your principal over time, the cost comes down significantly. The time period is specified prior to the amortization process and is designed in a way that you completely pay off the debt within the specified period.

Showcasing the True Cost of Borrowing

An amortization table will highlight each and every payment you have to make in order to pay off the debt. The table highlights a starting balance, ending balance, a fixed payment amount you have to make each month, a principal amount that is calculated by subtracting the ending balance of each month from the starting balance, and the interest payments which would decline every month.

Instead of focusing on monthly payments because they are going to remain the same, a loan amortization table can help you calculate the exact amount of interest that needs to be paid. Typically, people base their decisions on the amount of the monthly payment, however, the real cost of borrowing is more accurately determined through interest costs that are usually stretched over a long period of time. Therefore, if you want to evaluate the true costs associated with a loan, you must always consult an amortization table.

Loan Amortization helps in Decision Making

Deciding on which loan to choose can get tricky as it can be hard to assess each lender’s terms. Interest rates or shortening the payment span can greatly influence the amount you could end up paying. There are also ways to skip interest charges on loans if you make early payments. It will always pay off if you lay your decision on solid information rather going with an offer that simply sounds good. Amortization of the loan ensures that you are offered the detailed information of each and every payment so you can plan accordingly. Loan amortization simply makes decision making a lot easier.

How to Amortize Loans

There are many ways to create amortization tables. You can build one for yourself or use an online calculator that can easily create one for you. The online option is more convenient and reliable for loans that span over a long period of time. Figuring out how the table works is simple math. The payment is centered on the amount of the loan, the interest rate, and how many years the loan lasts. Those three ingredients work together to affect how much you pay each month and how much total interest you’ll pay. As you lower the interest rate, the payments will also decrease. Stretching out the loan over a longer duration would lower the payments, however, you end up paying more interest. All values basically work in response to one another.

Types of Loan Amortization

Auto Loans

Auto loans are usually 5 years or shorter and are often paid through fixed payments. Because the loan is not a huge amount of money compared to other types of loans, buyers prefer to pay them in equal payments without stretching them out and raising the interest costs.

Home Loans and Mortgages

This kind of loan is spanned over longer time periods, such as 15 or 30 years. People generally tend to refinance these types of loans at some point.

Personal Loans

Credit unions, banks, and online lenders offer personal loans at fixed interest rates that are to be paid back within a specific time period. A loan amortization must be done for all kind of personal loans to ensure that you can plan ahead for future payments.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Financing - Complete Controller

There are three main purposes of financing:

  • Funding a business start-up
  • Financing for growth and expansion of a business
  • Dealing with unforeseen financial encounters

Sources of Business Financing:

  • Self-Funding
  • Giving up Equity
  • Debt Check out America's Best Bookkeepers

Debt is taken on by an entrepreneur to use in funding huge purchases that they could not afford under normal circumstances. A debt arrangement means that the borrower is given money under the condition that the money will be paid back at later dates with interest. There are different types of funding:

  • Business credit card use
  • Small Business Administration loans
  • Foreign investors
  • Crowdfunding/selling shares of the business

An Entrepreneur Must Be Clear of the Situation and Considerations When Taking Loans

Consider the following when taking a loan:

  1. How early are the finances needed? If there is no time to wait, then debt financing may be the only option left to invest in the business.
  2. How much finance is needed? If there is a small amount to be invested, a loan can be taken.
  3. If a company is running successfully and financing is required urgently, debt can be taken.
  4. Debt is beneficial if you want to keep the business local and keep the whole ownership with you.
  5. When taking debt, the lender has no claim to equity in the business. Ownership remains the same. Business operation and bookkeeping decisions remain with the owners/entrepreneurs/executive management. Check out America's Best Bookkeepers
  6. When net profit is increased, the lender will only be given the borrowed money and the interest in it. If business progress and rewards are larger, the entrepreneurs will reap the rewards. The lender will have no claim or share in the business rewards/profits.
  7. Interests on debt can be subtracted on the business’s tax returns: Borrowing money can be a gift to entrepreneurs. The cost of interests decreases taxable profit that your business earns, thus it reduces the tax expense in your company/business. Large corporations/businesses also use this strategy to minimize tax expense.

Consider options other than taking loans:

  • Debt has to be paid back with interests, whether the business is a success or not.
  • High interest in debt during a recession of business can dissolve the business.
  • The bigger the debt to equity ratio in the business, the riskier the business is considered by investors.
  • The company is usually required to place assets of the company as security/warranty to the lender.
  • If you are making day to day purchases and are small in numbers, then the use of a business credit card is the best possible option.

 

It can be a challenging duty of entrepreneurs to decide when and how business financing is right for the business. If the entrepreneur does not have enough money to be used as the capital investment, they may go to lenders for borrowing money or taking debts from banks or financial institutes. Starters in the business field are not experienced, and lenders will not give them a true picture. Getting loans in the wrong situations and at the wrong times is costing financial losses to entrepreneurs. Check out America's Best Bookkeepers

Entrepreneurs must understand these important factors before going to lenders:

  • Credit history: previously, how has the business financing been managed.
  • Ability to pay back the loan: is the business going well enough to pay back the amount borrowed with interest?
  • Has the entrepreneur invested enough personal finances as capital in the business?
  • Does the business have assets to be put down as security in debt in the case that the business fails, or a period of double-dip happens?
  • Does the entrepreneur have enough experience in business financing and business operations?

Conclusion

If entrepreneurs are not experienced, they can consult with bankers and accounting firms to get a clear picture of their business and when to take a loan. They can benefit from the advice of bankers as well. 

Using the right tools and the right assistance at the right time for business financing is a way to a successful business. 

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers