By Fernando Berrocal

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Taking out a business loan isn't always an easy decision.  Taking one at the right time can take your business to the next level.  Doing it at the wrong time, however, can be a serious setback. Before heading down this path, consider your unique situation and all the options available.  

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If you're already dealing with business debts, for instance, a loan might create more complications that it solves.  As a rule of thumb, always contact a finance professional you trust before making any decisions– from there, consider the following questions:

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What exactly do I require the funding for?

What exactly will you be using the money for? Perhaps you’re trying to launch your business, and you need money to cover the initial costs associated with those first steps. Or maybe you need augmented financial support to promote or expand your thriving startup.  Many founders see a need to invest in equipment, and qualified employees–others simply need more cash to pay bills.

There are actually a range of loan options available to startup founders; a Small Business Administration (SBA) microloan is worth considering.

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Is the loan truly necessary for my business?

Second, you must evaluate whether or not you actually require a loan to accomplish your objective(s).  Is financing critical for the growth, development, or expansion of your business?  If not, consider the risks.  Taking on more debt is often less than advisable–consider alternatives, such as applying for a line of credit tailored for business owners, getting support from your personal network, or even finding private investors.

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What is my credit score?  What about my credit history?

The higher your credit score is - and the longer your history is - the more likely you are to get approved for a business loan.

Most lenders will require personal and business credit histories–and scores.  These numbers will determine if you are approved for a business loan.  Before taking a loan, have a look at all credit ratings and histories. Request a credit report. Your bank or credit card providers may also be able to provide you with these documents.

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How much do I need to borrow?

Do you already have debt?  What is your annual revenue? When it comes to calculating the amount of money to borrow, your business plan is the best place to start. You can also use this plan to appease lenders; they tend to appreciate these strategic documents. A strong business plan may assist you in budgeting and identifying what will be beneficial–and harmful.

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What are my overall financial obligations?

Already deep in any type of debt?  You don't want to add more to it.  As a rule of thumb, determine exactly how much other debt you have before getting new loans.  Moreover, it is likely that excessive debt will be a barrier in obtaining more loans. If you're unsure, talk to a lender about the different options you have available.

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How much will the loan cost me?

Read all of the print before applying for a business loan.  Use an online calculator.  Consider variables such as interest rate, applicable fees and penalties, and total amount of the loan.  Do your research--you want to know precisely what you're committing to, and what your responsibilities will be.

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What is the procedure for applying for a loan?

Time, documentation, and patience are required to get a small business loan. So, how do you apply for one? 

• Obtain your credit report. Take a good look at it!
• Take this report - and the other necessary documents requested - to your lender.
• Begin the lender's application process.

Keep these tips in mind as you pursue loan options for your small business.  By maximizing your awareness of what a loan truly entails - and what all your options are - you will make the optimal choice for your startup.

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Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.

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