If you are a business owner, borrowing money to expand your operations is typically a smart move. The best way is to apply for a loan as your business entity so you can accurately track your spending, as well as keep your business finances separate from your personal finances. In this blog, we will discuss why this is important and what loan products may be available for your business borrowing.
Keep Business Transactions Separate
Keeping your business and personal finances separate is the best way to run your operations and protect your personal assets, such as your home and savings, if there are any legal actions against your business. It also makes it easier to defend yourself if there is an audit or dispute with your business. In addition, maintaining separate bookkeeping is essential when it comes time to do your business taxes. For example, it helps you to avoid any improper deductions and/or inaccurate tax returns.
Borrowing for Your Business
Before you decide to apply for a business loan, there are a few things you should consider. First, be sure you know exactly why you need the loan. Is it for purchasing equipment, expanding inventory, purchasing property or something else? Knowing why you need a loan will help you determine the right amount and type of loan.
Next, be sure you know your credit score, have reviewed your credit report for any inaccuracies and have fixed them. Finally, create a business plan for your loan and financial projects of what you expect to come from it.
Business Lending Options
Once you know how much you want to borrow, research and compare your local business lenders. Options range from credit unions and traditional banks to online lenders, government loans and lines of credit. Shop around for the best interest rates, terms and benefits that fit your needs and your business budget.
Here are some of the main lending options available to business owners:
- Small Business Loans: Many financial institutions offer small business loans to help you start or expand your operations. The amount you may borrow will vary depending on several factors, including whether your business has been operating for more than two years, how profitable your business is and whether the loan amount is at least $10,000. Check with your preferred lender for details and loan requirements.
- SBA Loans: The U.S. Small Business Administration offers loans to business owners who want to start or expand. This government loan includes competitive terms, loan counseling and education, and may even offer lower down payments. The amount you can borrow ranges from $500 to $5.5 million. Businesses must be for-profit, operate in the U.S. and be creditworthy to qualify. There may be additional requirements depending on the type of business you have or the loan amount. Visit sba.gov to learn more.
- Business Credit Cards: Applying for a business credit card is a way to borrow through revolving credit that you pay back each month. Most financial institutions offer business credit cards with varying features and benefits, and they may be better than personal credit cards, says NerdWallet. One advantage is that business cards usually have higher credit limits compared to consumer credit cards. Some business credit cards also offer spending rewards, such as cash back. Shop around for the best interest rates and features.
Manage Your Loan Responsibly
Once you’ve decided upon a loan option, be sure to keep the loan funds separate from your personal and other types of accounts. Stick to your budget and use the money only for what you planned. Avoid the temptation to spend impulsively. Be sure to track your business performance to gauge the success of your borrowing.
When it comes to repayment, ensure your cash flow can cover the monthly payment amount. Consider automatic payments to avoid missing deadlines. Speak with your business lender if there are any issues with repayment.
How Travis Credit Union Can Help
Travis Credit Union offers business lending solutions to fit your needs, such as business loans and a Visa business credit card. Visit our Small Business Loans page and apply for a small business loan with TCU today. TCU is focused on the financial wellness of you and business. Visit our free Knowledge Base for digital financial education courses that can help you better manage your money.