A Guide to Getting a Small Business Loan Pt 1
A small business loan is something that is required by many enterprises which have yet to make a good track record in their chosen niche. When soliciting a flexible loan option, applying for it and getting it approved can be complex. As a rule, the more prepared a business customer is for this, the better the chances things will pan out. Here are some general pointers on how to get a small business loan.
Clarify Why You Require the Funds
A lender would definitely ask why you need a loan, and your answer to them will probably fall into one or more of these categories.
- In order to start a business
- To deal with day-to-day expenses associated with running it
- To grow your business venture
- To also have a safety cushion
Determine Which Kind of Loan is Suitable for You
Your situation would also dictate the type of loan that you get. For any start-up, it is impractical to hope to obtain a business loan inside its first year of operation. Any lender you approach would insist on being shown steady cash returns into your venture, just to ensure you can repay the loan they would give you. Barring that, you can expect to be disqualified from financing right away.
In that case, you would need to rely on your business credit card, crowdfunding, personal loan, borrowing from family and friends, or a small loan from a non-profit lending institution.
For a business that holds twelve months or more of working history as well as proof of steady revenue, plenty of financing options would be available, such as term loans, SBA loans, invoice factoring, and lines of credit.
Decide the Best Lender for Your Business
You can obtain a small business loan from many places, such as banks, online lenders, and nonprofit microloan providers. All these offer products comprising term loans, accounts receivable financing, as well as lines of credit. You have to approach shopping for a loan the same how you would picking out a car. After you find the right lender or “financing vehicle” for your business, assess two or three options that are similar based on APR (total borrowing cost) as well as terms. From the ones you qualify for, select the loan with the lowest annual percentage rate, provided you are able to manage regular payments. Following are some preferences you should uphold in this regard.
- A bank loan if you can provide collateral, and have good credit, and do not require cash fast.
- A loan from a microlender when you cannot get a traditional business loan, primarily because your enterprise is too small.
- Borrowing from an online lender when you cannot provide collateral or time in business, and have a quick requirement for working capital.