Small business loans serve businesses by covering startup expenses and expanding a business’s budget.
In other words, loans help businesses grow, adapt and profit. Getting a loan can be a difficult and lengthy process. Once you apply, it can take some time to get approved. That’s why it’s best to plan and apply for loans as soon as possible.
When it comes down to it, there’s only three steps you need to think about when getting a small business loan. This article will help you find and secure a business loan all on your own.
Determine What Kind of Loan Your Business Needs
The best small business loans are the ones you’ve planned for.
Before you apply for loans, figure out:
- How much you need
- The type of loan you need
- Whether or not the loan is short or long-term
- How to pay back the loan
To start, you need to decide how much money your business needs. The amount of money determines the kind of lender you should go for. Most lenders require that business owners have a specific amount in mind to even apply.
You have two main options when it comes to types of loans, installment loans and revolving credit. Installment loans provide a fixed amount of money, helping businesses cover specific costs. Revolving credit gives your business credit on a monthly basis up to a certain amount.
Before you finalize your loan, decide if you need a long-term or short-term loan. Short term loans start at six months and go up to two years. Any other length of time beyond that requires a long-term loan.
After taking the first steps towards securing a loan, you can move on to choosing a lender.
Research and Choose a Loan Provider
The following lenders will have their own requirements to apply for loans. They’ll also likely have their own terms for interest, repayment rules, and criteria. Some lenders approve funds in twenty-four hours or less, while some may take months to approve.
Business Credit Card: Instead of going through the loan process, a business credit card is much easier to obtain. These have credit limits that can be raised depending on personal credit history and how regularly they’re paid off. Nearly any bank or credit union offers a business credit card.
Banks: Securing a loan from a bank can provide large lump sums of credit or capital that can be sourced locally. Banks are reliable, stable sources of funding. Banks also have minimum loan limits, requiring large amounts to be borrowed. Banks do not typically invest in high-risk business ventures.
Microlenders: If you don’t need much capital, microlenders are the perfect place to secure loans. Microlenders provide small loans quickly, smaller than banks typically offer. These microlenders can offer fast access to funds but often have higher interest rates. Additionally, personal credit score can be lower when taking loans from microlenders. Generally, microloans assist small businesses that have a hard time getting financial assistance due to personal finance problems.
Fintech: Online financial institutions are more flexible than banks and do not always need good credit to apply for. These financiers look at company performance as their baseline for investment.
SBA and SBA Partners: The Small Business Administration offers government-backed financing. SBA loans include microloans and large ones, up to five million dollars. Secure and reliable, these loans help businesses in a variety of industries. Payment terms and rules on using the funds can be very strict.
Securing the Loan
The final step is to apply for the loan.
Each type of lender needs financial information from you and your business. Some applications will require everything from personal financial history to a plan detailing the use of funds.
Microlenders don’t need as much paperwork, since they focus on fast loan approval. SBA loans and bank loans, however, have a lengthy application process since they offer larger sums of money.
Use the lender as a resource during the application process. They will assist you with documentation and planning, which sets up your small business for success.
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