How To Tell What Size Business Loan You Need

Every business, no matter what industry, what size, or how long it’s been around, is going to need some extra money now and again. Whatever the reason, the need for small businesses to get additional financing above and beyond standard income and revenue will always be there, as small businesses borrowed over $1 trillion in 2013* with that number projected to grow as the number of small businesses in America continues to rise.

As common as small business loans are these days, if you’re a business owner in America you’ve probably considered getting one. But the question is always there – if you do get a small business loan, how much do you need? Here’s a few things to look at when considering getting some extra funding for your business:

What Will The Loan Be Used For?: The first thing that needs to be considered before you try getting small business funding is to determine exactly what you’re going to need the money for. Are you trying to ramp up on inventory before the busy season starts? Do you need a business expansion loan to help branch out into new locations and markets? Or do you just need a little help with payroll and operating costs? Not only will this give you a more direct idea of how much money you’ll need, many business loan providers will also need an idea of what the money will be spent on once you receive it.

What Are Your Current Business Expenses?: The next things that should be taken into account when considering a small business loan are your current expenses and operating costs. While unexpected expenses can’t always be planned for ahead of time, you can average out your regularly occurring monthly costs and expenses such as payroll, utility bills, rent, inventory replenishment costs, and anything else that already takes up your finances and resources. This will give you a clearer picture of what your loan amount should ideally be.

What Are Your Current Income & Savings?: Next, after looking at how much money you already need to spend every month, take a look at what you make every month and how much you have in reserve. It isn’t always a good idea to dip into your savings to help pay for business expenses, but knowing how much money you have in reserve and how much you can reasonably expect to make every month – outstanding invoices, customer revenue, and so on – may give you the flexibility to ask for an amount that you know you can afford to pay back.

How Long Can You Pay Your Loan Off?: Finally, there will come a time when every loan needs to be repaid and this is an important factor to consider. How long can you afford to have the extra expense of repaying your loan? Most small business loans are designed to be repaid in the short term, so if you can afford the extra payments after receiving the loan, you’ll be in a better place to repay – and obtain – the amount you need.

Finding the right-sized capital for your business can be a complicated process, but knowing your business will be all the better for it in the end will be worth it.