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5 Things You Need To Know About Your Small Business Loans

In today’s ever-changing and fluctuating economic climate, small business loans and financial backing are absolutely essential. Small businesses always need extra money to fuel up their business ideology. A small business owner explores the loan options either to feed the current business losses or acquire funding for business expansion and equipment. Making the right business decisions at the right time call for in-depth research of the lending market along with a deep understanding of your business requirements. Our five-step guide will help you to figure out everything from building your creditworthiness to finding the right lender.

  1. Determine
    why you need a loan:

It is always better to prepare before starting
the voyage. You must be very clear about your need for a small business loan.
This is the key determinant of your choice of lender and loan type. A small
business might need financing to maintain business operations, buy new
equipment, start a new branch or simply give a boost to business capital during
tough economic times. Companies that are expanding themselves already have
enough capital and these small loans are sought just to maintain their
operating cash flow enabling them to cover any unforeseen costs. Small loans
are not only beneficial for business growth but they are also easy to avail
because there is an array of lending options and lenders who are more than
happy to partner with business owners with a credit score of 720 or higher.

  • Explore the available small business loan options:

Your reasons for taking the loan will dictate your next steps and choices. Primarily there are three types of  small business loans; Bank loans that are backed by the Small Business Administration(SBA), microloans granted by nonprofit lenders and loans from online lenders. You must assess your eligibility for any of these loan options before making a loan application. A brief overview is as under:

Bank loans:
An excellent business and personal credit history is the key requisite to
obtain an SBA-backed bank loan. These loans are provided through 7(a) loan
program of US Small Business Administration. The loan amounts can vary between
$5,000 and $5 million. To qualify for this loan, your business entity should
have a credit score of at least 680. Your business must be in operation for at
least one year with minimum annual revenue between $ 50,000 and $ 150,000. A
clear proof of your ability to pay back the loan is highly desirable. Your
financial position must be demonstrated through detailed financial statements
reflecting that your income is at least 1.25 times your operating expenses,
including the new repayment amount.

Micro lenders: Micro lending option is best suited for a
very small company. Micro lenders are non-profits that usually deal with
typically short-term lending of less than $35,000. They have a much higher APR
than bank loans but are among the best stopgap options to temporarily bridge a cash-flow
gap. Micro lenders also require detailed paper work with respect to your
financial statements and business plans.

Online lenders: Online lenders pop in your business’s
financial picture when you lack collateral, run a new business and need money
quickly. With an average APR of as high as 108%, online lending is always the
last resort for a small business entrepreneur. 
Approval rates of online lending are very high with a fast release of
funds within 24 hours. If you have opted for this option, be mindful of
sticking to an aggressive repayment schedule before your business gets pulled
into serious debt trap.

Decide what type of business loan suits you:

After careful evaluation of small business
loans and their respective pros and cons, you are ready to take the plunge. The
best loan option for you is the one that syncs well with your financial health
and can give a boost to your small business entity.

Being a startup, it is virtually impossible for
you to get SBA backed bank financing because your business should be one year
old to qualify for this loan along with enough cash flow to support the loan
repayment. In such a scenario, the right option for you is to rely on business
credit cards, borrowing from friends and family, microloans or online lenders.
Whatever option you choose, be mindful of Annual Percentage Rate (APR), total
borrowing cost and associated terms and conditions.

SBA Backed Bank Loans Micro Loans Online Lending
For an established business at least a year old with credit score of 680 For a small business start up For a small business start up
Require collateral High APR High APR of 108%
Do not provide fast processing Short term loans of less than $35,000 Fast cash processing

out if you qualify:

Answers to the following questions determine your
qualification for a small business loan.

  1. What is your credit score?

       You can get free credit report from the
three major credit bureaus – Equifax, Experian and  

       TransUnion — once a year.

  • How long you have been in the business?

SBA backed small business loans require your presence of at least one year in the business.

  • Do you make enough money?

You must be able to show your
minimum annual revenue. Lenders usually require a figure ranging from$50,000 to
$ 150,000.

  • Can you make the payments?

Without collateral you cannot opt for SBA
backed bank loans. Your total income should be at least 1.25 times of your
total expense along with loan repayment.

Finally gather your documents and apply:

After careful consideration of your options and eligibility, you are well
prepared to file your loan application. Depending upon your selection of lender, you need to
prepare multiple documents comprising of tax returns, financial statements and
legal agreements/articles of incorporation.

In short, building your dream company is not easy. Every single day
is packed up with multiple financial challenges for a start up business
entrepreneur who seeks respite in small business loans. Though tight lending
standards have complicated the things but proper expert guidance can help you in
acquiring the best small business loan that can help in the strong positioning
of your business entity.

The post 5 Things You Need To Know About Your Small Business Loans appeared first on Alternative Small Business Loans.

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