The right business loan can help you raise the capital you need to start a new business, expand an existing business, gain access to working capital, and get more done. But not all business loans are created equal and understanding how each type of loan works can give you a better idea of what is right for you and your business.
you’ve ever thought, “How do business loans work?” This guide can help.
How do business loans work?
The business loan is the capital that lenders offer to businesses. In exchange for this money, the lenders demand the repayment of the principal and interest and fees are added to it. Generally, business loans require regular repayments at a certain time, but repayment terms and interest rates can vary widely.
Business loan requirements
Regardless of the type of business loan you are applying for, expect to see many of the same qualification and approval requirements.
Personal and business credit score
If your business has an established credit history, lenders can run a credit check to see how the business has managed credit in the past. A poor business loan history can make it difficult to approve affordable financing.
If your business thinks you still have a credit history, and sometimes even if you do, lenders will also check your credit score. This is primarily because many business loans require a personal guarantee that reduces the debt on your assets if your business is expected to pay.
If you have a good or excellent personal loan, lenders are likely to place more value on your collateral. However, if your credit score is deemed bad or fair, it may pose a higher risk to the lender and you may have a harder time getting approved.