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How to Get a Loan for Your Business

At some point, most businesses will need a business loan. Here are some tips to help you save time and effort, while minimizing potential headaches.

  1. Define what the money is for. Be ready to tell your lender exactly why you need the funds, and how the loan will help your business. Is it to expand your business? To manage day-to-day operations? For financing a new franchise or acquiring new equipment? Or is it simply to give you a safety cushion for greater flexibility? The lender will want to know.

  2. Identify the best kind of loan for you. You’ll find a variety of funding solutions, and the right one will depend on your situation.
    • Term loans, the kind offered by banks, are typically the least expensive, but they demand good credit and proof of steady income.
    • Lines of credit provide flexibility, and you only pay interest on the funds you actually borrow.
    • Factoring, in which lenders purchase for cash your unpaid accounts receivable, can keep your cash flow steady. Learn more about commercial factoring here.
    • Microloans are generally provided by nonprofit lenders and, as the name implies, are usually limited to a maximum of $35,000. Business credit cards, personal loans, or advances on your credit and debit card sales are the most expensive options.

  3. Choose the right lender. Today, you can choose from banks, commercial finance companies, online lenders and nonprofit microlenders. Each will offer different terms and rates, and each has different qualifying criteria. Once you’ve identified the most appropriate avenue, shop among companies for the best combination of terms and rates for your situation. 

  4. Determine your qualifications. In considering your application, most potential lenders will likely examine the same criteria. These include your credit score, time in business, your annual income and the collateral you can offer. The higher your credit score, the longer your history and the greater your sales volume, the more likely you are to receive a loan with favorable repayment terms.

  5. Borrow only what you can afford. So if your business has $10,000 a month in income, you shouldn’t pay more than $7,500 a month in total expenses—and that includes your monthly loan repayment. 

  6. Assemble your documents. Depending on the lender, you’ll need to submit a package of documents that include: business and personal tax returns; business and personal bank statements; business financial statements; and business legal documents, such as articles of incorporation, commercial leases, and/or franchise agreements.

Remember, you have many options when it comes to financing. Do your homework, make sure you’re properly prepared and then shop around. Chances are, you’ll find the funds you need at terms and rates that work for you at CIT.

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