Many small enterprises are in desperate need of capital to expand. If you want to expand your business but can't get a loan from a bank, there's still hope: business loans are a possibility! Here, we'll go over what these loans are and how they can help your company expand.
Business loans are a terrific way for a company to get money without putting up any equity. In other words, they do not need to sell a portion of the firm or business to get funds. These types of loans distinguish them from Venture Capitalists and Angel Investors, who frequently require these types of agreements when investing in their companies. So you're probably wondering what they are, what types exist, and how to obtain them.
What Is a Small Business Loan?
A small business loan is secured or unsecured financing that enables you to borrow money against your company's equity. Businesses will provide financial assistance if you choose to use your business as collateral until the loan is paid off (secured loan). Businesses will also provide financial assistance if you can demonstrate that you have the financial resources to repay the loan based on your credit history, character, collateral, capital raised, and other factors (unsecured).
Several forms of small business loans have arisen over time to assist entrepreneurs in achieving their objectives. As a result, the operation of a small business loan is dependent on the type of loan.
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What Are The Types and How Do We Get Them?
SBA Loans and Business Lines of Credit are the two most common loans for small businesses (BLOC).
- SBA Loan: The US Small Business Administration (SBA) offers SBA Loans to assist small businesses in growing and becoming more profitable. SBA loans are federally insured, low-interest loans with flexible terms that assist businesses in obtaining financing when they need it most (though there may be restrictions).
- BLOC (Business Line of Credit): The BLOC provides for any business expense, such as inventory, equipment acquisitions, expansion charges, or running expenses. Your bank will provide you with a revolving line of credit.
It operates similarly to a bank account overdraft; you can spend as much as you like, but you must pay it back. You can borrow cash and repay them as often as you want with a small company line of credit as long as you don't go over your credit limit.
Small Business Credit Cards
A small company credit card is comparable to a personal credit card, but there are a few differences to be aware of. A small business card may have reporting capabilities, allowing you to categorize and track your spending. It may also include a rewards program that allows you to save money on things like office supplies and marketing services. If you’re interested, check out our monthly consulting services that may assist you with your success and financial goals. This includes personalizing and expediting your financial and business goals through us at a very affordable and low-cost rate. You can cancel anytime!
Working Capital Loans
Unlike certain small business loans designed to fund long-term assets or investments, working capital loans use the funding for your company's day-to-day operations. Rent, salary, and debt payments are examples of these procedures. Working capital loans have shorter durations and lesser sums than other small business loans. These loans connect to your credit, which will be harmed if you don't pay on time.
As your small business grows, equipment loans can help you replace old equipment or purchase new equipment. You can utilize an equipment loan to pay for things like X-ray devices or infusion pumps if you're in the healthcare industry. Equipment loans typically require less documentation than other small business loans so that you can get money quickly.
Accounts Receivable Financing
Accounts receivable finance, often known as factoring, sells your receivables or unpaid invoices to a lender in exchange for early payment. In exchange for a fee, the lender assumes the risk of your receivables and provides your company with cash. The amount of money received will be determined by the age and quality of the receivables. While quick access to cash is a benefit of accounts receivable finance, you'll undoubtedly pay more for it than other types of financing, especially if your company's credit isn't perfect.
Where to Get a Small Business Loan
A small business loan can be obtained in a variety of ways. Alternative lenders specializing in financing for new or expanding firms offer more possibilities than banks and other financial organizations. If your project is compelling enough, you might be able to get crowd-sourced money from sites like Kickstarter.
Direct Online Lenders
Many online lenders provide small business owners with loans immediately. Because they rely on technology and algorithms, their loans are processed faster than those provided by traditional lenders such as banks.
Direct online lenders, on the other hand, often charge higher interest rates. If you require immediate cash and cannot obtain a loan from a regular lender, you may want to consider this option.
- Large Community Banks: Locally owned and run banks are known as community banks. They can provide you with more personalized attention because they are often smaller than commercial banks, which can be a significant benefit as your business expands.
Furthermore, unlike commercial banks, which may consider your credit score and financial statements, community banks are more likely to examine your whole credit report as well as other areas of your business. If you have a good credit history but a low credit score, this is a tremendous advantage.
- Large Commercial Banks: While large commercial banks have strict standards for small business loan clients, they can give larger loans than other lenders, which can benefit while developing.
Another benefit of getting a small company loan from a big bank is the ability to lock in low-interest rates. Keep in mind that while commercial bank financing has its advantages, these loans can be challenging to obtain, especially if you don't have excellent credit.
Peer-to-Peer Lending Sites
Because the money originates from a group of investors rather than a single lender, small company loans through peer-to-peer lending sites like Peerform and Lending Club are frequently easier to qualify for than loans from traditional lenders. These loans typically have higher interest rates, which might raise the total cost of your loan.
The following is how peer-to-peer lending sites operate: The P2P lending platform serves as a go-between for you (the borrower) and the investors. It can match your loan request with available funds from investors. Investors who lend to you will pay the interest you pay on the loan, less the fee charged by the lending site.
When it comes to peer-to-peer lending services, there are a few things to keep in mind. Consider the following factors while selecting the best website for you:
- Know what documents you'll need to submit and whether you'll be able to complete the application procedure online.
- Estimated time to funding: You may require the funds right away, so find out how long it will take to fund the loan.
- How much money can you borrow? What are the minimum and maximum loan amounts? Is the amount you require available?
- Qualifications of the borrower: Learn about the requirements for obtaining a loan. Income and credit scores are examples of this.
- Costs: What fees will you have to pay in addition to the interest rate? When do you have to make a payment to them?
Make a Business Plan
A business plan's objective is to show lenders how you intend to spend your funds. Business plans are necessary to figure out how to make projections and budgeting once presenting them to lenders. Make sure you include the following information in your business plan:
- Description of the company
- Description of the product or service
- Market research
- Sales and marketing strategy and implementation by the management team
- Financial estimates and plans
Recognize Your Alternatives
Getting accepted for a small business loan becomes easy when you've done your homework and are aware of all of your alternatives. Make it a goal to repay your loan on time to benefit rather than hinder your business.
Keep in mind that as a small business owner your personal credit will be taken into consideration, separate from your business credit. Having good personal credit can ultimately be the determining factor for an approval when applying for a business loan. If all this information is overwhelming for you, Easy Solutions is here every step of the way so you can hit your financial goals and achieve success! We provide an array of services that ensures that if you ever hit roadblocks on your journey, our credit repair services and financial consulting provide Easy Solutions for your needs.