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Business Loan FAQ
We will be answering the most frequently asked questions about business loans in this article. Starting a business can be confusing and stressful, especially when you could also use some financing. We will tell you everything you need to know about business loans and have you ready to make a decision by the end of this article.
Some of the most common questions are,
Are Business Loan Payments Tax Deductible?
When a business loan is received by a company, it's not included as taxable income. In turn, when that loan is repaid, you are not able to deduct loan principal payments. You are simply paying back the money you borrowed, not the income spent. However, you can deduct your interest as a business expense if you meet certain qualifications. You must be legally liable for the loan, you and the lender must agree that you intend to pay off the debt, and you and the lender must have a true debtor-creditor, or lender-borrower, relationship. Basically, it must be a loan from a legitimate lender and you should meet the requirements. A loan your friend gave you and you paid back would not be eligible to write off as a business expense.
Can Business Loans Be Given For Personal Use?
Business loans are different from personal loans, you must have an operating business to qualify for a business loan and a personal loan is mostly based off of your credit history. Most business loans can only be used for the business, and if you are planning on using a business loan for personal reasons you may want to just pursue a personal loan instead. With that being said, there are unsecured business loans. These programs have no restriction as to what you can use the money for and it is up to the owners discretion. These programs are typically advances on your business' future receivables like an MCA or factoring deal.
How Does a Business Loan Work?
There are many types of business loans, and for the outline of the most popular programs you can read our article "The Different Types of Small Business Loans". Generally speaking the process of getting a business loan is fairly simple. You apply with a lender of your choice either in person or online. After that the lender will underwrite your file and get back to you with terms for financing. Business loans work differently from personal loans and may require proof of ownership and business bank statements to prove the revenue of the business. Other documents necessary may include, a Tax Return, Voided Check, Drivers License, or a P&L/Balance Sheet. Payments may also be different from a personal loan. Monthly payment options are most commonly available for term loans or large corporations. Weekly and daily payments are also common payment frequencies for a business loan. The more frequent payments are meant to help the business with cash flow and avoid a large bill at the end of the month.
What Business Loan Do I Qualify For?
There are many ways to qualify for a business loan, but generally speaking business that have been in business over 1 year and that are doing over $10,000 in monthly revenue (revenue is calculated before expenses) have the best chances of being approved. You can get an approval without those requirements in specific situations like if your business is new but you have high revenue and a large account receivable. You cann apply with us and we will give you a free no obligation look at your business and let you know where you stand. Click Here to get started.
When To Take a Business Loan?
Most people assume business loans are only for struggling businesses. This is not true. Business loans can be used to grow your company quickly or for expansions that would not be possible while dealing with operating costs. Let's say you're looking to expand your business to a new location. In the beginning the first store would have to make enough to support the staff and rent/mortgage of the new store for a couple of weeks until it started to turn a profit. This is a risky move for a business owner. Not only do you risk the failure of the new location but your original one may suffer as well. Business financing can get your business the capital it needs to make a move like this and mitigate the risks involved. The best time to take a business loan is when you see growth in your business but a lack of capital is stopping you from expanding beyond your current capacity. In these situations a business loan can exponentially speed up the growth of your company and help you increase your profits.
Where to Get a Business Loan?
You used to have to go to the bank with a stack of paperwork and a couple of hours to spare to apply for a business loan. Thanks to the internet this is no longer the case. You can apply for a business loan online with most lenders including Trust Capital Funding. A simple application and your most recent business bank statements is enough for most lenders to underwrite your file and come back with a decision. Click Here to get started now.
Who Can Get a Business Loan?
A Business owner is allowed to get a loan on behalf of their business. Generally speaking you must have at least majority ownership or you may need the approval or your partners. The business should not have any liens or past defaults with other lenders. A business owner that filed for bankruptcy recently or has felonies on their record, may have a hard time securing a business loan.
Will a Business Loan Affect My Mortgage?
Business loans with a personal guarantee will affect your personal credit profile. This can be a problem if you're looking to get a mortgage or refinance an existing one. Talk with your representative and ask if the program you're looking for has a personal guarantee or not. Unsecured loans will not be reflected on your credit profile, but at the time of funding a lender may pull your credit history resulting with a hard inquiry on your credit and lowering your score. Keep this in mind when applying for a business loan and let your representative know you're also shopping for a mortgage so they won't do any pulls on your credit and conflict with your home buying process.
Are There Business Loans Without Collateral?
Business loans without collateral exist. This generally comes in the form of a cash advance. Another term for this type of loan is unsecured working capital. These programs have no restrictions on the use of the capital and typically come without a personal guarantee. Talk to a representative at Trust Capital Funding today for more information on our loans without collateral.