Business Loans: How Do They Work?

January 26, 2021

Are you thinking about expanding your business? Do you need funds to launch one instead? If that’s the case, you may need capital from a lender. Business loans are one of the most sought-after funding sources for startups, growing companies, or those that need a bit of financial support. Used properly, they can provide you with the funds your small business needs to thrive.

You may be unsure how to get a business loan or avoid the wrong loan, especially one that could cost you too much or have hidden fees. So, how do business loans work? Let’s break down what they are, how they work, and the types available to you.

Meeting Business Loan Requirements

The first step New Valley Bank’s lending team will take is to understand you and your businesses current financial health and how a potential business loan may help achieve your goals going forward. The following items are analyzed to determine your businesses credit quality and what type of financing a lender might provide;

  • Business financial statements such as cash flow reports and profit and loss statements
  • History related to foreclosures, bankruptcy, or collections
  • The length of the business’s history (the longer you’ve been in business, the better)
  • Collateral available to secure the loan (ie. real estate, equipment, accounts receivable, etc.)
  • Personal credit score of the owner(s)

Determining How Much You Need

When a lender gathers this information, they will generally provide you with the most they can lend to your company. Once given this number, make your decision based on the amount you definitely need. If you reduce how much you borrow, it will help keep payments low.

They will also provide you with information about the interest rate, terms of the bank loan, and the monthly payment you’ll need to make.

Types of Business Loans Available to You

There are a few types of business loans that may work for you:

  • Revolving loans. These work as credit lines allowing you to use the same available credit balance over time. You can make payments to free up more space, much like a credit card works.
  • Term Financing: These loans provide an injection of capital into your business, which is then repaid over a predetermined loan term. Payments are made monthly and include principal and interest.
  • Real Estate Loans: Commercial Mortgages are longer term loans secured by real estate and are repaid similar to Term Financing above.

Other types of bank loans may be available, including equipment financing and, business credit cards. It’s always a good idea to work with your lender to understand each type of loan and how well they may work for you. They may help you qualify for a U.S. Small Business Administration loan, too. These could get your business started or provide you with funds to grow.

Learn More From Your Community Banking Leaders

As long as you are working with a lender you trust, you’ll gain all of the insight you need. To learn more about which loans are right for your business, contact New Valley Bank today.

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Business Loans: How Do They Work?