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Business loans can provide you with the cash you need to purchase inventory or equipment, finance business expansion, pay employees and cover other costs. Before applying, make sure to understand how these loans operate and what paperwork you’ll need to submit to your lender. Be aware of how long the application process will take and any fees you may incur.
Common uses for business loans
A business loan can help pay for unexpected expenses, such as a damaged office chair, or the COVID-19 pandemic. You may also require borrowing funds to pay for an unavoidable capital expenditure, for example, replacing or upgrading technology, purchasing equipment for manufacturing or renovating a retail store. Some lenders offer lines of credit that allow you to draw funds when needed, with a set maximum and interest only charged on the amount that is used.
Application process and eligibility requirements
You will be required to provide specific information regarding your business, such as the official name of your business as well as its tax ID number as well as any financial documents. This may include business plans, proposals and profit and loss statements, as well as the names and Social Security numbers of those who hold 20% to 25 percent or more of your company. Some lenders require that you have been in business for at least one year, while some allow startups and don’t have any time-in-business requirements.
It can be helpful to have a guide or mentor to guide you through the process of obtaining business loans. SCORE for instance, has a network of business mentors who provide advice for free or at a low cost to founders of startups and small businesses. You can search for an area-based chapter to meet with an advisor in person.