As a business owner or entrepreneur, you already know that growing your business requires investing a portion of your profits back into it. This could be for any number of reasons, such as hiring additional employees, purchasing new equipment, buying commercial real estate for a new location, or funding a big marketing push into a new demographic. These investments allow the business to grow and increase its marketshare, thereby making additional profits down the road.
However, sometimes the associated price tag can be more than the total funds your business currently has available, and not having the money you need can cause your business’ growth to plateau.
This is the point where you should consider a business loan from Hancock Whitney. The right loan for your business can allow your business to grow and achieve the goals you’ve set. There are a number of different business loan options available, and knowing which is the right choice for your business depends on what you’re trying to achieve, you and your business’ credit history, and exactly how much funding you’ll need to meet your goals.
Questions to Answer Before Applying for a Business Loan
Before you apply for a loan, you’ll first want to answer the following questions. These are questions that are going to come up during the application process, so not only will you want to be prepared, but the answers will also help you determine exactly what type of loan product would be best for your business’ unique circumstances and goals.
If you’re a business owner and you find yourself having trouble answering any of the questions below, one of our business bankers will be happy to help you through the process and arrive at the right loan product for your business needs.
Why Does Your Business Need a Loan?
First, you’ll need to consider exactly what you intend to use the money for. Some loans will have restrictions on what their funding can be used for, while the nature of your use might mean that a particular loan product is better suited to your needs than others.
For example, if you need the funding to help make your payroll and you think this could be an ongoing need, a business line of credit might be the most appropriate option as you only borrow the exact amount you need as you need it, and because operating expenses are one of the intended uses for a business line of credit.
How Much Money Does Your Business Need?
The next step is to determine exactly how much funding your business needs. Depending on what you’re trying to achieve, this could be a relatively simple step, or it might involve making complicated estimations and projections.
Determining how much you’ll need for a commercial real estate purchase might be as simple as getting a number from the seller’s agent that includes the cost of the real estate plus the associated fees and taxes. (Note that this will not be the total amount of the loan, however, as it doesn’t factor in things like the interest on the loan itself.)
On the other hand, determining how much you’ll need to finance the actual building of a new location can be a much more complicated matter. You’ll need to factor in costs like permits, hiring a builder, building materials, furniture, fixtures, and much, much more.
Figuring out how much money you’ll need to request in your business loan can be a complicated process, and it can be easy to overlook things, so it pays to take your time, be thorough, and ask questions of the people who will be involved.
Can Your Business Afford to Make Regular Loan Payments?
Finally, as a business owner, you’ll also need to consider whether your business can afford the cost of operations with the added expense of a regular loan payment. You want to avoid a situation where you can’t afford to pay all your bills and risk defaulting on your business loan.
As a rule of thumb, the maximum business loan amount you take on should fall between 10 and 30 percent of your business’ annual income. Any more than this, and you might be putting your business’ financial health at risk.
Determine What Type of Business Loan You Need
Once you’re comfortable with your answers to the above questions, it’s time to consider exactly what type of business loan you should apply for. There are many options available for business loans, and it’s easy to feel overwhelmed at this step, in which case, it can be a good idea to get one of Hancock Whitney’s business bankers involved.
We can use the information you’ve already gathered to take the guesswork out of the process and provide you with business loan options that are tailor-made to your company’s needs.
Conventional Business Loan
A conventional business loan is simply a loan provided by a bank, credit union, or similar financial institution. In other words, the funds are fully provided by this private lender, and the bank assumes all of the risks involved with making the loan in the event of a default.
As the responsibility for these business loans belongs to the bank funding it, the qualifications and terms of these loans are then based on the bank’s own guidelines and underwriting criteria. Contact Hancock Whitney’s business bankers to learn more about how a conventional business loan could be the right solution to your funding needs.
SBA-Guaranteed Business Loan
A business loan guaranteed by the Small Business Administration (SBA) differs from a conventional loan in that it is backed by the SBA’s guarantee. This replaces the need for collateral and means that if the loan defaults, the SBA will be responsible for paying the lender for the guaranteed portion of the loan.
This guarantee allows SBA lenders to provide longer loan terms (up to 25 years), lower down payments, and less stringent qualification criteria. There are several different types of SBA loans available, including 7(a) loans, 504 loans, SBA Express loans, and SBA microloans. Contact one of our business bankers to discover which SBA loan could be the right one for your business.
Business Line of Credit
While business loans are generally a form of installment credit, a business line of credit differs in that it is revolving credit. With a line of credit, you are approved to borrow up to a certain amount, but you only borrow the money as you need it, similar to a credit card.
A business line of credit is ideal for supplementing your cashflow, minor transactions, and other short-term financial needs. As you only borrow what you need, as you need it, your payment will depend on where your balance stands from month to month. Contact our business bankers to inquire about opening a line of credit for your business.
Equipment Financing
For the purpose of equipment finance, any tangible asset that isn’t real estate might qualify as business equipment. Company vehicles, computers, office furniture, and any necessary equipment unique to your business’ industry and operations could qualify.
The equipment itself often acts as the collateral for an equipment finance loan, which can remove the need for a down payment. Hancock Whitney offers both equipment loans (we provide you with a loan to buy the equipment) and lease options (we buy the equipment for you and then lease it to you). Contact our business bankers to learn more.
Commercial Real Estate Loan
A commercial real estate loan (CRE) is used to buy or renovate real estate that will be used to generate income. You can also use a CRE to refinance an existing commercial mortgage. In a CRE, the property itself is usually used as collateral for the loan.
Get in touch with our business bankers to learn how our commercial real estate loans can help you with your business’ real estate needs. Construction loans for new commercial builds are also available.
Qualifying and Applying for a Business Loan
Successfully applying for a business loan will require that you and your business meet all the qualifying criteria of the loan. What these requirements are will depend on what kind of loan you’re applying for and who the lender is.
The most commonly evaluated criteria in business loans are as follows:
- Credit score of both the business owner and the business itself
- Business plan detailing income and expense projections
- Business financial information, including balance sheets, profit-and-loss statements, tax returns, and bank statements
- Collateral for the loan
- Business size and type (especially when applying for a small business loan)
- Length of time you’ve been in business
When you apply for a business loan with Hancock Whitney, we’ll help you pinpoint exactly what type of loan would work best for your business’ specific finances and what you want to achieve. Once we know the type of business loan you need, we’ll help you determine exactly what documentation you’ll need to gather during the application process.
Get the Business Loan Your Company Needs
At Hancock Whitney, your dream is our mission. We’re committed to our communities and want to see business owners and entrepreneurs thrive. If your business needs to explore funding options, please contact one of our business bankers. We’re here to help you find the business loan that works for you and your company.
