Small Business Loans Help Businesses Get Off The Ground

Small Business Loans Help Businesses Get Off The Ground

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Every business starts its operations with the aim of earning profits. But at some point, the business needs some additional funds to either expand or meet expenses. Small business loans are a great help for businesses when they don’t have funds readily accessible.

You need cash to purchase equipment, start a marketing campaign, or pay rent; you can apply for a small business loan. A small business loan is different from other types of loans, and you need to understand how it works before applying for the loan. You can get a small business loan from several sources such as banks, credit unions, and online lenders.

A small business loan:

No matter you are planning to start a new business or already own one, you know that you need funds. Starting and running a business can be expensive. What should you do when you do not have enough cash in hand. You cannot simply close the doors of your company. You need to consider going into debt.

A small business loan provides business with much-needed working capital that can be used for a variety of functions. When you receive the funds, you can use it to purchase inventory equipment for hiring staff or keeping cash flowing. The lender may ask you out an asset as collateral to secure the loan. The borrower has to repay the loan along with the fixed interest over a designated period of time.

Types of small business loans:

There are different types of small business loans available out there for businesses to get off the ground. If you think that as a business owner, you will never take a loan, then you are wrong. In certain situations, small businesses are left with no option other than going into debt. Whatever your business needs, there is a small business loan for that.

1.     Fast loans for your small business:

Small business loans are a great option for businesses looking for financial help. The loans discussed below can be obtained from banks, credit unions, or online lenders. Bear in mind that these loans may take several weeks or even months to get approved.

Following are fast small business loans you can obtain when you need financial help:

·         SBA loans:

What can be better than getting a long-term loan at a low-interest rate? SBA loans are backed by a federal agency called small business administration. Since these loans are guaranteed by SBA, the borrower obtains these loans at a low-interest rate.

·         Business acquisition loan:

You need capital to purchase an existing business, then look no further. You can obtain a business acquisition loan to purchase a franchise or any other business. The loan amount in business acquisition loans ranges from $5000 to $5,000,000.

·         Commercial mortgage:

Building out your business location is indeed a smart way to increase your assets, and a commercial mortgage can help you do this. A commercial mortgage is the type of small business loan designed to help your business building related financial costs. You can use these funds to purchase commercial property.

·         Business term loan:

A business loan is a flexible way to get more working capital and build your credit. It is indeed a classic financial option to help your small business grow. You can borrow a lump sum from a lender, and you have to pay it back in steady increment over the set borrowing term.

2.     Faster loans for small businesses:

Following are the small business loans you can get faster:

·         Startup loan:

Starting a business is expensive, and you do not know exactly how much money you will need. Startup loans are designed to help entrepreneurs turn their idea of owning a business into reality.

·         Equipment financing:

You need to purchase machinery or a vehicle for your business, and you do not have enough funds? Don’t worry!

Equipment financing allows you to purchase equipment for your business. You can buy a fridge, computers, vehicle, or tractor, etc.

·         A business line of credit:

It is like a financial safety net for your business.  You can use a business line of credit loan for hiring staff, increasing inventory, or buying equipment, etc. As a matter of fact, it is one of the most flexible types of financing. A business line of credit is revolving, and you can use it as many times as you want. Bear in mind that you can withdraw funds up to a certain limit.

3.     Fastest loans for small business:

Sometimes your business needs cash immediately. You cannot wait for weeks or months to get the loan approved. In this situation, the following types of small business loans can help you meet your urgent needs:

·         Account receivable financing:

If you need quick access to working capital, account receivable financing is the right option. In this type of financing, you sell your unpaid invoices to the lender and get cash in advance. The lender charges interest and lends you money.

·         Merchant cash advance:

It allows you to borrow money against future earnings to access cash today.  They are funded more quickly than the other types of financing.  Collateral is not typically required to start a merchant cash advance. You need cash within 24 hours; a merchant cash advance is the right option.

How to choose the best loan for your small business?

There are different types of small business loans available out there, as already discussed above. You should choose one according to your needs. If you need cash fast, then you should choose merchant cash advance or account receivable funding. In some cases, you have to tell the lender how you are going to use the loan proceeds. You cannot use equipment loan to pay rent.

The following are a few factors that guide you to choose the right type of small business a loan for your business:

·         How fast you need money?

If you are in dire need of cash, then you should apply for a business loan that takes less time to get approved. Getting a loan from a bank can take several months to get approved. Invoice factoring is the right option when you need cash faster.

·         How much money do you need?

You should first determine how much money you need. If you need to acquire a business, then invoice factoring does not make sense. So, choose a type of loan according to the cash you need.

·         The amount of interest you can pay:

When you obtain a loan, you have to pay it back with interest. You should choose a type of loan in which you have to pay a low-interest rate.

·         What are your qualifications?

You cannot qualify for every small business loan. There are different factors that help you qualify for a certain loan, such as time of business, your revenues, and credit score. If you do not have a good credit score, then getting an SBA loan would be difficult.

You should weight your financing options with different lending products. Do not look at one type of loan.

Small business loan requirements:

You have to meet certain requirements provided by the lenders in order to qualify for a small business loan. Let’s take a look at top business loan requirements:

·         Credit score:

It is highly important to have a good credit score to apply for a small business loan. If you are thinking of obtaining an SBA loan or any loan from a bank, you need to have a good credit score. In case you do not have a good credit score, then the chances of getting the loan approved may decrease.

If you are applying for a loan from a bank, you must have a credit score of 700 or above. However, if you are reaching out to an online lender, then you may succeed in obtaining a loan even with a bad credit score.

·         Type of industry:

You should be dealing in the approved industry if you want to get a small business loan. In simple words, if you have indulged in an illegal business, then you cannot apply for a small business loan.

Moreover, to get an SBA loan, the businesses must meet the requirements provided by small business administration (SBA). The SBA definition of small business is by the gross income or by the number of employees.

·         Collateral:

Not all the lenders require you to put up collateral to get a loan. But if the lender asks you to put an asset as collateral to secure the loan, then you have to list assets on your loan application. The benefit of putting collateral is that your loan is secured and you will be paying a low rate of interest. In an unsecured loan, the borrower has to pay a high-interest rate.

Why do the lenders ask for collateral? They are lending your money, so they want assurance that they will be able to recover their money. If the borrower fails to pay the borrowed money back, they have the right to seize the asset.

·         Years in business:

To obtain an SBA loan, you must have been in business for two years. If your business is running for more than 2 or 3 years, then getting a small business loan is relatively easy. But if you are starting a new business, then the lender may be hesitant in approving the loan.

You need a strong business plan specifying your goals to convince the lender to approve your loan. Since the lender’s primary concern is the repayment, make sure you give revenue projections in the business plan to assure the lender that you will be able to pay his money back within the specified period.

·         Cash flow:

It is highly important to maintain cash flow if you want to obtain a small business loan. After paying the expenses each month, how much money is left? Your cash flow shows how much you will be able to pay each month. If you succeed in maintaining good cash flow, then the chances of getting the loan approved may increase.

The lender can also do a comparison of account receivables and account payables. You will not be able to choose the best month as the lender will do a comparison in a month you are asking for a loan.

·         Business plan:

Lenders do not often ask for a business plan. But if you are starting a new business, then your business plan plays an important role in assuring the lender that you will be able to pay his money back. Adding information about the plan in your loan application can make your business stand out from others. As a matter of fact, it is like adding an excellent cover letter to your resume. It is important to tell the lender how you are going to sue the loan proceeds.

·         Financial statements:

The lender will review all the financial statements to make sure that you are eligible to get a small business loan. Some lenders prefer the audited financial statements, but it can be costly, and small businesses can’t afford to pay to the audit fee. So, you should consult a lender that does not ask for audited financial statements. The lenders examine your bank record so, make sure you have everything ready before applying for a small business loan.

How can you use a small business loan?

·         You can purchase inventory.

·         The borrower can make payroll if he is finding it difficult to pay the salaries of employees.

·         These funds can be used to pay rent or meet day to day expenses of the business.

·         In case you want to acquire a new business, you can apply for a small business loan.

·         Small business loans can be used to purchase machinery, equipment, software, etc.

·         You can use these funds to expand or upgrade your business.

Summing up:

Getting a small business loan is a solution to all the financial problems of small businesses. But it can be a daunting task as you have to take care of everything. Your loan application can be turned down if you provide any incorrect or wrong information. The information you provide in the loan application must be accurate and clear.

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