Are you looking for a significant funding solution for your company?
Businesses often source out additional funds when their reserves can no longer keep up with their daily operation. When the need arises, the first option would be to obtain a large business business loan.
This, however, isn’t always so easy.
Most equipment financing companies and banks seem to advertise only offers of small business loans. With a substantial amount of money at stake, it can often be hard to determine the best course of action.
That’s why today I want to talk about everything you need to know about large business loans.
Things To Consider In Getting Large Business Loans
When your company is in dire need of large loans in order to continue its daily operations or expand, it can prove to put a serious strain on your confidence and time.
Fortunately, there are several avenues to choose from when it comes to sourcing large business loans.
In order to ensure that you are making the right decision for your business, understanding what large business loans are and the process in acquiring them becomes essential.
What Are Large Business Loans
A large business loan is specifically designed for the purpose of helping big businesses with their expansions, acquiring new equipment or maintenance of daily operations.
With this kind of loan, a considerable amount of money is lent over a certain period of years with monthly payments and interest rate fixed over the agreed loan term.
This business loan is often used to improve a business’s cash flow. But… it can also be used for different purposes.
There are several kinds of large loans for business to choose from, namely:
- Bank loans,
- Equipment financing loans,
- Equipment leasing,
- Mezzanine financing,
- Asset-based financing,
- Invoice financing,
- Business cash advances, and
- Cash flow loans.
When To Consider Getting Large Business Loans
Ask yourself, “Why do I need a large business loan?”
Borrowing a large amount of money is a long-term commitment that has dire consequences should you try to run from it. It’s not a decision that can be made at a drop of a hat given the big risks involved for your business.
Equipment financing companies and banks are cautious of this as well and often require a good reason from companies before processing their applications.
Here are the common reasons why large business loans are used:
1. To Help To Expand Your Physical Location
Expanding the physical location of your business will enable you to handle more operations, consequently increasing the number of customers and revenue. If this is something you are looking to do, then a large business loan is needed.
Companies looking to expand usually have to undergo a revenue forecast to predict what would be the impact on your business in case the expansion proceeds. This will help determine whether a large business loan will help increase the revenue or become a cause of bankruptcy.
2. You Need Equipment For Your Business
Another good reason to consider getting a business loan is when you need to fund mission critical equipment for your business. Purchasing mission critical equipment can be a great investment because it’s useful and it will contribute to increasing revenues or saving money by cutting costs.
3. You Need To Buy More Inventory
In order to keep up with demand, inventories need to be upgraded from time to time, making it one of the biggest contributors to business’ expenses. When you have no cash on hand to support this purchase, getting a business loan would be an ideal solution.
Before taking this step, it is important to create a sales projection to determine if your business will have a steady flow of income to support the repayments.
4. If Your Business Need Additional Staff
Increasing your manpower does not come cheap. However, if the reason behind the recruitment is to increase operation, then it becomes a valid reason for getting a business loan.
Additional staff will contribute to the growth of your business and can be a source of productivity on a daily basis.
7 Steps To Get Large Business Loans For Startups
Startups are often faced with many challenges before realizing their dreams. The biggest challenge is not having access to proper funding needed to execute their business ideas.
Who, after all, wants to lend money to a company that does not have proof of money coming in yet?
Investing in a startup is one of the biggest risks for equipment financing companies and banks. To lessen the possibility of getting rejected by the best equipment financing companies, here are some tips if you are a startup business looking to apply for large business loans:
1. Start Before The Loan Is Needed
Build a relationship with key individuals from the best equipment financing company. Let them know details about you and your business. When it comes to doing transactions that can be somewhat complicated, people would rather opt to do it with those they know and trust.
2. Decide What The Money Is Needed For
You should have a good reason for getting large business loans. Avoid obtaining a loan if your business is experiencing large ongoing losses, office build outs, or acquiring unnecessary equipment.
Use large business loans only if you’re:
- Financing mission critical equipment,
- Financing a piece of real estate,
- Financing business software,
- Large seasonal sales variations.
The reasons stated above are beneficial and it would definitely help you in repaying the large business loans.
3. Decide How Much Money The Company Needs
When you already have a valid reason for acquiring large loans, the next thing that must be decided is just how much money is needed.
Underestimating the amount of money can lead to problems related to insufficient capital.
On the other hand, overestimating the amount of money needed might result in the financing company questioning your assumptions and company’s credibility.
Plan your budget before applying for large business loans and support it with financial projections.
4. Know The Score
A huge factor in approval of business loans is the credit score of the borrower. This indicates that they are worthy of the loan and are capable of repaying it back. Borrowers are judged on the following:
- Credit Score. Most of the best equipment financing companies look for a credit score of at least 700-800 range to get a large equipment loan. Figures between 700-650 are acceptable but does not guarantee a large equipment loan.
- Debt To Income. Personal debt payments should not be more than 33% of gross monthly income.
- Time In Business. Companies that have been operating for at least 2 years are more likely to receive loans. Aside from that, a reliable record of incoming accounts receivables must be provided.
- Report On Industry Risk. Industry risk is rated based on the government SIC codes which are ranked.
- Report On Cash Flow. Most of the best equipment financing companies give money to large businesses based on the company’s cash flow.
5. Find A Lender
Look for a lender that suits your business needs and payment method. Common sources of large business loans are:
- Commercial Banks,
- Non-bank Lenders,
- Region Specific Lenders,
- Alternative Equipment lenders,
- Working capital lenders,
- Private Equipment Finance Companies.
6. Prepare The Business Loan Application Package
Once you found the best lender with the lowest equipment leasing rates for your business, prepare the needed documents for your business loan application.
Here are the typically required documents when applying for a loan:
- A business plan including business owners’ resumes.
- Financial results and projections.
- Personal financial statement including two years of tax returns.
- Proof of liquidity.
- Contracts with customers.
7. Wait For An Answer
The best equipment financing companies usually require 2 - 4 days to make a decision regarding large business loans financial package. It’s common for lending institutions to ask for additional documentation once they contacted you to continue the process of your business loan application. If you're seeking equipment leasing for start up business than remember to be patient and follow up every other day.
Common Sources For Large Business Loans
Finding the right source for your large business loans is very important. You should always prepare yourself for possible rejections on your first attempt. Having multiple sources to apply for a large business loan can be useful.
Banks are the most common lenders for both small and large businesses. They are the first option whenever a loan is needed.
However the chances of having your application rejected is often higher than getting it approved. Large banks have stricter policies with regards to business loan applications, resulting in an approval rate of only 20%. Large banks will usually have the lowest equipment leasing rates but are hard to get approved for.
A lot of smaller banks are looking for companies as candidates for large business loans. In order to meet the requirements, companies need to have strong credit, substantial collateral, and a strong underlying business.
Approval rates for smaller banks are higher than large banks at above 50%. However, lending limits tend to be lower and more cautious.
Small Business Administration (SBA) Loans
SBA is a United States government agency that provides support to entrepreneurs and small businesses. Loans can be given up to $5 million at a reduced risk to the lender.
While this sounds like the best option, it is important to note that process for loan applications can take from 2 - 4 months.
Alternative lenders are commonly referred to as FinTech or peer to peer lenders. While there is generally more flexibility as compared to banks, the maximum amount of loan is only at $100,000-$500,000.
Private Equipment Finance Companies
Most private equipment finance companies offer flexibility with regards to payment options with a shorter processing time. Businesses are allowed to make smaller monthly payments in the beginning of the equipment financing agreement to help the customer generate revenue and see a faster return on investment. Equipment finance programs such as no payments for the first 3 months. $99 for the first 6 months is also a common equipment finance program offered by equipment leasing companies.
The best private equipment finance companies have the lowest equipment leasing rates for their respective industry that they specialize in.
Payments can also be customized to match business’ seasonal cash flow.
Benefits Of Getting Large Business Loans
Large business loans can help businesses with increasing their working capital or maintaining operation cash to cover daily operations and expenses.
Another benefit is in the event that the business fails. When the business is liquidated, funds obtained can be used to pay back part of the business loan.
It is also advantageous to secure a large business loan during this unpredictable economic climate given the current low interest rates.
Warning Before Getting Large Business Loans
It is essential to understand the terms under each option presented to you by your chosen business lender. Here are some points that could help you consider if the offered loan is best for your business.
- Frequency and flexibility of payment deadlines.
- How interest will be calculated and how often.
- Any penalties needed to be paid in case of missing a deadline.
- What kind of customer service they will provide.
- Whether or not you can negotiate the terms in the future.
- What are the costs involved with paying off the business loan early?
Examining each lender’s large business loans offerings can help you pick the one that is best suited for your business.
Final Thoughts On Large Business Loans
In this article, we discussed what large business loans are and the various considerations before acquiring them. It’s important to have a logical reason for your application as there is a substantial amount of money at stake.
To aid startup owners in securing proper funding for the execution of their business plans and ideas, we provided suggestions to increase chances of loan applications. Sources for large business loans such as banks, private lending companies and SBAs were explained and differentiated.
We further enumerated the benefits of acquiring large business loans, which are:
- Increase working capital for expansion or operating cash flow to cover daily operations
- Owners of large corporate entities with diversified ownership are not required to repay the large business loan if business fails. This can be sourced from the liquidation of the company.
- Lower interest rates.