Business loan

How to get a small business loan

Small business owners tend to come from fairly resilient stocks.

Running your own business isn’t for the easily scared, after all. Even under perfect circumstances, business grows; its reputation is stellar – you are faced with a million small decisions that you will have to make with confidence.

Taking out a small business loan creates about a million more.

How much money do you need? How much money can you get? Do you need warranty? What is the warranty?

Whether you’re a sole proprietor or leading a team of 100, here’s everything you need to know about getting a business loan.

Should I get a small business loan?

First, getting into debt involves uncertainty and risk, and small business lending is no different.

If you’re a new business owner, an accountant – and also a financial adviser, preferably – can help you figure out which loans you qualify for, how much debt you can afford, and if it’s worth it. Whether or not it’s a good idea to take it out in the first place.

You will also need to think about your specific business needs before submitting a loan application. Is your business still taking off? Are you in growth mode? Do you need extra cash to keep payroll and other expenses out of the red? Determine your “why” and be prepared to put it in writing.

Types of Small Business Loans

Small business owners have many different financing options.

A “line of credit” is popular, although it is technically not a loan at all. This borrowing option works much like a credit card, with lower interest rates and higher utility (some small business owners use lines of credit specifically to pay their suppliers who don’t accept cards). credit). Lines of credit can be used to pay just about any business expense, up to a certain dollar limit, and interest is paid on the funds drawn.

“Installment loans” or “term loans” follow a more traditional borrowing structure. The total amount is paid in a lump sum upon signing the contract and is tied to an agreed repayment period. Short-term loans can be repaid in a few months; long-term loans are often repaid over several years.

Other types of small business loans include microloans, equipment loans, start-up loans, and commercial mortgages.

SBA Loans: What Every Business Owner Should Know

Many loans (of all types) are guaranteed by the Small Business Administration (SBA), which works directly with banks and other lenders.

SBA loans make the relationship between borrowers and lenders less risky by guaranteeing a portion (usually around 50% to 85%) in the event of default. For lenders, taking out an SBA-backed loan helps avoid predatory lending and predatory interest rates.

Small business owners looking for disaster relief can also apply for an SBA loan. The Paycheck Protection Program outlined in the CARES Act was created specifically for businesses impacted by COVID-19, but SBA emergency funding isn’t new for 2020 — hurricanes, wildfires and other natural disasters sent small business owners to the SBA for years.

The fastest way to find traditional SBA loans is through the agency’s online website. Lender Match gate. For emergency loans, visit the SBA disaster relief website.

How to apply for a small business loan

Step 1: Start with a range of research. the SBA website, your community bank or credit union, and Google are great resources for determining the type of financing available. Use a spreadsheet to track what you find – keep a close eye on the interest rates, repayment terms and qualifications of every lender you meet.

Step 2: Gather all your documentation. The application process varies, but you will likely be asked to provide a series of personal and business financial statements, a credit score, tax returns, a copy of your business license, as well as an official document. application form– at least.

Step 3: Choose the lender that suits you best. Some small business loans are easier to get than others (type “bad credit loans” into Google for page after page of examples). Online lenders like Kabbage and Lendio can scatter cash in a flash, but beware of exorbitant interest rates and high (sometimes hidden) fees scattered in the fine print.

Funding guaranteed by banks is generally a safer bet, although it comes with greater hurdles. Bank of Americafor its part, requires businesses to be at least two years old and have a minimum annual income of $250,000 to qualify for many of its loans.

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Cash flow problems shouldn’t be a death sentence for small businesses.

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How is “collateral” factored into small business loans?

To obtain a lower interest rate, some business owners provide lenders with personal or business assets as collateral. These are called “secured loans” and carry an additional level of risk: if you cannot repay your loan at the end of the agreed term, these assets will be seized and sold.

For small business owners, collateral typically includes inventory, equipment, and commercial real estate.

What if my small business loan application is not approved?

People are rejected for small business loans All the time. It can be daunting, but it doesn’t have to be the end of the road.

If your application was denied due to a low or no business credit score, read how to strengthen this number. Finding a co-signer, someone who is willing to take over your loan payments if you don’t, can also improve your chances.

Consider hiring a small business coach or consultant to help you prepare for your next application. Score, a non-profit organization, offers free advice to businesses nationwide. And if you’re a woman, person of color, or other small business owner facing systemic barriers to funding, organizations like the Corporate Equity Foundations and the Local initiative support company are full of additional resources.