Where and how to get a small business loan
Whether it’s due to a lack of funds to add inventory or to purchase new equipment, many small businesses need additional capital.
While some small businesses try to make do with what they have, others look to banks, alternative lenders, or the government for a quick injection of cash.
For those looking for additional funding, there is no shortage of places to turn. Traditional banks, non-traditional lenders, and the Small Business Administration, through its loan program, all provide small businesses with access to additional capital. Next, you need to decipher which lender will serve you the best, and which will give you the greatest chance of success. [Looking for a business loan? Check out our reviews and best picks.]
As Head of Small Business Lending and Decision Science at Capital One, Iskender Eguz has a ton of knowledge about the different loan options and what it takes to get one.
Eguz has over 15 years of experience in advanced analysis, strategy development, assessments, marketing and credit risk management. In his current role, he leads all aspects of A capital letterbank lending to small businesses and businesses, including income statement and credit risk management, valuations and pricing, underwriting and portfolio management, data science, product development and technological investments.
We recently had the chance to chat with Eguz about the different loan options, the types of loans available, how to apply, and mistakes to avoid along the way.
Editor’s Note: Looking for financing for your business? Fill out the questionnaire below so that our supplier partners can contact you with free information.
Apply for a loan
Q: What should small business owners do to prepare to apply for a loan?
A: When preparing to apply for a business loan, you should keep in mind the Five Cs of Credit, a common lending framework. The five Cs are capacity, capital, collateral, conditions and character.
- The underlying business or business plan must have the capacity generate enough cash flow to pay off debts, while absorbing unforeseen expenses or changing conditions in the economy or industry.
- the character, or who owns the small business, is essential. It is important not only to know if you have the expertise to be successful in your business, but also your personal credit history showing proof that you have fulfilled your previous debt obligations.
- Finally, how much personal investment or money you put into your business (Capital city) and if you would offer something as collateral for the loan (collateral) shows your commitment to the business and can influence your ability to gain approval.
It is important that you know your business well and that you are prepared to have an open discussion about your business situation according to these dimensions so that the banker can structure the best products for your needs.
Q: When applying for a loan, do lenders consider your business financial situation, your personal financial situation, or both?
A: Lenders typically consider the Five Cs of Business and Homeowner Credit, although the focus on different aspects may change depending on the purpose, size, duration, and structure of the loan. Each case is unique and lenders often assess and structure loans on an individual basis, taking into account the situation of the business, as well as our relationship and knowledge of the business.
Q: What are the most common mistakes small business owners make when applying for a small business loan and how can they avoid them?
A: A common mistake we see is that business owners don’t partner with their banker. It is important to openly discuss your plans, opportunities, and risks that you see so that they can help you structure the product (s) that would best meet your needs.
Many business owners underestimate or overestimate the amount of borrowing they will need. Business owners may need a combination of term loans to invest, as well as lines of credit that support their continued growth.
Sometimes Small Business Administration (SBA) loans can be the right answer, giving clients the extended terms they need that they might not otherwise be able to qualify for. Having an open dialogue about where the business is going can help you understand what makes the most sense for your business.
Q: What are the advantages and disadvantages of applying for a loan from traditional banks versus alternative lenders?
A: Alternative lenders have gained popularity in the market but are not transparent about the total cost of the loan. When you factor in repayment schedules and fixed interest rates versus variable interest rates, we’ve found that most small business owners end up paying a lot more for a non-traditional loan than a bank loan. traditional.
Types of small business loans
Q: How do you know if your business is best suited for a term loan versus a line of credit?
A: In general, term loans are best suited for the specific investments a business is considering, while lines of credit are useful for managing the cash cycle. Of course, every business has a unique situation, and we work closely with our clients to understand all of their capital and financing needs so that we can respond effectively and help structure the product (s) that would best meet their needs. .
Q: Do all loans require you to provide collateral? What are the examples of guarantees that a company can put in place?
A: Not all loans require collateral. It depends on the size of the demand and the financial strength of the business. Loans under $ 100,000 can be unsecured (unsecured), but larger loans are usually backed by some type of collateral.
The type of collateral varies depending on the purpose of the loan. For example, if the loan is to finance real estate or machinery, the collateral would be the asset involved.
The most common guarantee for lines of credit and term loans is a UCC lien on all of the company’s assets. Other types of collateral may be cash or marketable securities held in the financial institution, investment real estate and other types of tangible assets.
When a client does not have the collateral to secure a loan, SBA loans can be a great alternative. Our bankers help our clients determine the best loan structures based on their unique circumstances and goals.
Q: How should you best determine if the loan terms make tax sense for your business?
A: Like most other business decisions, business owners should consider the cost of debt versus the returns they expect from investing that money in their business. They should also ensure that they have sufficient liquidity or some other financial cushion.[s] that will allow them to service their debts despite the ups and downs that naturally occur during an economic cycle, without increasing the burden on the business.
As mentioned earlier, it’s important for business owners to meet with their bankers to discuss their plans, opportunities, and risks. Our bankers help our clients structure a loan that is best for their business, taking into account their past and present income and expenses, as well as what is expected for the future.
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A: Who lives without their smartphone these days? I’m also amazed at how many things I’m starting to ask Alexa at home these days.
Q: What’s the best career advice you’ve ever received?
A: No job is worth doing if you aren’t excited about it. Also, be sure to work with people who believe in you and who believe in you.
Q: What’s the best book or blog you’ve read recently?
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Q: What is the biggest risk you have taken professionally? Did it pay off?
A: I’ve never been afraid to try something new and speak my truth wherever I go. At Capital One, I have held various positions, moving on several occasions to activities in which I have no previous experience. It absolutely paid off. The humility and the learning mindset that comes with it is unprecedented and frankly addicting. You find more doors open than not, if you are willing to seek them out and go through them.