Small business loan providers consider factors like your company’s creditworthiness before deciding to approve or deny your loan (or other types of small business financing). This is important to understand as a small business owner as most small businesses need at least some external financing at some point during their operations. Here is what you need to know about your small business loan options.
Before applying for a small business loan, you should consider all the available types of loans to see which one best suits your company’s needs as well as your qualifications.
Both credit unions and banks are able to provide a pretty wide range of different loans that can support the growth of small businesses and startups. Here are the most popular bank loan types:
SBA stands for Small Business Administration. This government agency offer loans to support the development of small businesses. They don’t offer money directly to owners. Instead, they collaborate with banks or other lending institutions to make sure that many startups or small companies secure funding. Most people consider SBA loans less risky than others due to the fact that they come from a government agency. Some of these loans’ characteristics are plenty of resources, competitive terms, and lower down payment requirements. The value of a loan varies between $500 and $5.5 million. Entrepreneurs are free to use the money for numerous business purposes, although certain lenders might establish restrictions related to loan uses. The typical requirements that you need to check if you want to apply for this type of loan are the following:
This unconventional type of small business loan is useful for many companies, especially for those that operate in the retail, restaurant, and services industries because those businesses normally get a high volume of transactions made through credit cards.
Many entrepreneurs who own small businesses opt for a personal business loan, although these might have high APRs, especially when it comes to borrowers with bad credit scores. For those who have a strong income stream and great personal credit, this type of loan comes as a blessing. Economy professionals recommend owners to try other options first and leave this one as their last resort. This advice comes as a potential warning because, through business loans, one can only receive a small amount of money.
Crowdfunding is an extremely popular method that small businesses use to receive money. Successful platforms like Indiegogo or Kickstarter allow you to ask for funding through online campaigns. The people who help you with money are called donors, and, in exchange, you offer them gifts instead of paying them back. Besides the rewards crowdfunding system, there’s also the equity crowdfunding, which enables you to access a public pool of interested investors who might agree to finance the company you’re about to start or the small business you’re struggling with. In exchange, they look for equity ownership. Two of the most important advantages that crowdfunding offers are these:
If you haven’t done this before, applying for a loan to sustain your small business might seem overwhelming. In reality, the application process is quite manageable as long as you plan ahead. Here are the steps you must take before asking for small business loans.
Why do you need a loan? The main purpose of a small business loan usually falls into one of the following categories:
The urgent needs of your small business will offer you an idea of the type of loan you should apply for. Unfortunately, many startups don’t qualify for loans because they don’t operate many transactions, or they lack cash flow. In that case, you would have to resort to crowdfunding or personal loans. If you’re on the market for at least one year, you should qualify for other financing options like an SBA loan.
You must determine things like credit history (because lenders will require you to tell them about it), cash flow (you must have enough because, otherwise, you may not be eligible to repay the loan), and collateral (to secure the business loan).
You must gather all the necessary documents:
Your small business has unique needs, so it is important to consider its financing options carefully. Research every alternative and determine its pros and cons before asking yourself what amount of money you need, what your short-term goals are, and, of course, what monthly rate you can afford to pay.