When to Ask for a Business Loan

Samantha Erkkila, Digital Media Specialist

September 1, 2022

Syvantis Technologies, Inc., in Baxter, Minnesota, has grown exponentially in part due to our loans.

Asking for a business loan can feel like an intimidating and overwhelming process, but our team is here every step of the way whether you are asking for money that will enable your business to grow or to get your business off the ground.

Entrepreneur Fund team members Michael Lattery, Director of Business Finance, and Stephanie Williams, Business Advisor, shared their business loan knowledge, tools and resources during a recent webinar.

A recorded version of their presentation, "Asking for a Loan - You're Not Alone,” can be viewed here or keep reading as we break down when to ask for a business loan.

If you have additional questions about qualifying for a business loan, we encourage you to reach out to your business advisor or email us at info@entrepreneurfund.org.

So you're wondering when to ask for a business loan.

You might need a loan if ...

You're starting a new business

When starting a business, you will have many cash needs for the basics (utility deposits, rent, space improvements, inventory, etc.). You will need cash for a website and payroll and likely many expenses you didn’t think about. Bootstrapping for unknown expenses is difficult and many times these unknown/unplanned expenses go on your credit cards.

You're buying an existing business

If you are buying an existing business, you have the benefit of seeing the seller’s financials and the comfort of knowing its history. Applying for a business loan to buy a business will shed light on areas of weakness you may not have found on your own. Preserving some of your cash is a good safety net.  

Whether you are starting or buying a business you will have working capital needs: Some businesses generate cash immediately like a restaurant or retail store while some businesses have cash cycles that can take 1-3 months. Each business has a cash cycle for you to consider before beginning……the longer the cycle, the more working capital you need. 

You're expanding your business

Are you adding a second location? Do you need more equipment? Maybe more inventory? Or renovating your space? Adding new Staff? Additional training to offer more services?

You need a little extra help catching up on business bills

You'd like to build a cash reserve

Seasonality in our area is common, and it’s common for a business to lose money during their slow season. Having a cash reserve or a line of credit prior to the slow season will allow you to operate normally and pay your bills on time.

We offer cash reserve loans of all sizes.

Remember, the time to apply for a line of credit or cash reserve loan is before you need it.

You're buying a building

Buying a building will help you build your personal wealth as you grow your equity in the building.

Typically, you will need a 10-20% down payment.

Entrepreneur Fund can finance building purchases, or we can act as a subordinate gap lender in partnership with your bank to finance your building.

EFund Client Success Story

For 17 years, Yasuko Holt has been serving up authentic Japanese cuisine in the Twin Ports. With the help of the Entrepreneur Fund, Holt was able to recently purchase the Duluth building where she owns and operates her restaurant, Zen House.

Yasuko says she’s looking forward to the financial security owning a building will bring, especially as she thinks about her future retirement and wanting more free time with her family.

“With Yasuko, she’s got a few tenants that she could take care of and provide housing to so that’s even more of a benefit,” Entrepreneur Fund loan officer Andrew added. “Also, she’s building legacy in the community and providing a long-term asset for her family down the road.”

Read Yasuko's full story here

Keep an Eye Out for Predatory Lenders

Predatory lenders target the borrower, typically when they are most vulnerable, and ignore or hinder the borrower’s ability to repay the debt. These lending tactics often try to take advantage of a borrower’s lack of understanding about loans, terms, finances, and emotional distress.

Predatory lender red flags:

  • No disclosure of the interest rate and terms prior to loan closing.
  • “Too easy to be true.”
  • The name of the institution. Some of the names just sound bad.
  • Will roll in all unaccrued interest as well into the new loan when refinanced. The Interest rates can often be misleading as the closing fees, may eat up 10-25% of the actual loan amount.
  • Once you take out a payday loan, the option to add more to their existing loan or take out a new one is very simple, almost just a click of a button. Which is highly tempting for a lot of people and can be a never-ending cycle and the interest compounds on itself.
  • Payments may either be a straight daily or a percentage of sales (daily, weekly, monthly). Which if the client is not paying attention will eat up profits quickly.
  • Prepayment penalties.
  • The loan promises fast money with a quick and easy application process, usually less than 15 minutes with funds the next day and you have no human interaction with a loan officer.

If you have a loan from one of these predatory lenders, please reach out to us. There will be no judgement and you never have to feel ashamed or embarrassed.  We are your partner on your business journey and we are here to help you. We may be able to offer deferrals on payments until your business stabilizes, work with you to stabilize your business, pair you with one of our Expert Network Providers who can help move your business forward, refinance existing debt, or help find other solutions that make more financial sense for your business.

We Are Here to Help

At the Entrepreneur Fund we will always put you first. We will help you understand all your options and answer questions along the way. We are in the business of helping you reach your goals, and that may mean a different loan is best for you and your business. If you are considering a business loan, reach out to your business advisor, email us at info@entrepreneurfund.org or fill out this short form and an advisor will get back to you shortly.

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