Finance · November 12, 2020

What to Consider When Looking for the Right Type of Business Loan

When it comes to finding funding options, there are a variety of ways a business owner can secure a loan. Understanding how business loans work, however, can be a bit more confusing. It's often left to you to do the leg work to find out what type of business loan will meet your needs. 

It's helpful to be as prepared as possible before you take out a loan. That means getting a handle on the process and working with lenders you can trust to have your best interests at heart. 

Consider the major factors

Before making any decisions around getting a business loan, there are some key factors to know about how business loans work. 

You'll want to consider two important things: 

  • Why you need the funding
  • The potential advantages and disadvantages of that type of business loan

You'll also want to consider the possible risk factors that could impact any loan. When you're thinking about your needs and potential risks, bear in mind the current financial status of your business and your credit score—these factors could affect the type of business loan that's available to you.

Also, consider the basic features of each loan, like the available amount, interest rate, repayment schedule and any late fees or penalties on repayment. If you need a loan quickly, for instance, you might have limited options and less favorable repayment terms versus a loan to cover the costs of a planned expansion. Before you agree to any loan, you'll want to understand the terms and how this loan might impact your financials over the coming years. 

Finally, you may want to take a look at your current financial statements. Many lenders will focus on your cash flow. If you don't have the cash on hand to repay the loan, then you might have trouble securing it. So, it's vital to have a full view of your business's overall health as you begin the process of looking for a loan. 

Knowing each of these key factors—and preparing for them ahead of time—can help make the process more efficient and get you the funds you need faster.

Find the right loan for you

If you spend time researching how business loans work, you'll quickly learn that there are various types out there. Depending on your business needs and how you plan to spend that money, some loans might be a better fit. 

Before you jump into getting any loan, make sure you have a plan for how you'll use the funds you receive. A loan for buying new equipment can have very different terms than a short-term emergency loan to cover unexpected expenses.

When you go into the process knowing how you plan on using the funds and why you need them, you can focus on the loans that best fit your needs.

Work with a lender who makes a difference

When it comes to getting business financing, there's no one-size-fits-all solution that works for everyone. It's helpful to build a relationship with a lender who understands your needs and is there to help find the best options to keep your business on the right track.

Having this sort of relationship with your lender means a lot more than just finding an institution that can help you secure a loan. Instead, it can become a real strategic advantage. You and your business are more than just a number when your banker cares about your success.

Building a solid, long-lasting partnership with your business banker means you have someone who has your business's best interests in mind and can help you make the right financial decisions. That sort of relationship can make a real difference over the long term.


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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.