Running a small business is never easy. If you’re a small business owner, you need enough funds to help your company grow, improve your sales and marketing programs, finance new research and development, and many more. For this reason, taking out a small business loan can be a viable idea.
Unfortunately, applying for a small business loan can be challenging, especially if you don’t know where and how to start. As such, it’s always imperative to better understand the different factors before making a loan application. Also, there are some common myths about business loans you need to understand. Doing so can help you make the process more accurate and seamless.
If you think about getting small business loans, here are a few things to consider from the get-go.
Small Business Loans: An Overview
Primarily, small business loans refer to loans provided to small businesses by online and offline lenders for a variety of purposes. These are often used as working capital to fund regular business expenses. Hence, if you’re looking for cash to buy office equipment, finance your payroll, or support your marketing campaign, it might be a great idea to take out an online loan like a small business loan as an alternative to bank loans.
But, unlike other types of loans, small business loans have less stringent application requirements, thereby increasing the chances of every small business owner to secure a loan.
Small Business Loans: Things To Consider When Applying
As mentioned, applying for a small business loan requires a lot of considerations. If you want a successful loan approval, you have to assess your qualifications based on the requirements. But, more than anything else, below are the factors to consider when you take out a loan:
Type Of Lender To Do Business With
When it comes to loans and other financial services for your business, you get to deal with different types of lenders, such as traditional and non-traditional lenders. If you want to enjoy lower interest rates and flexible payment terms, you can apply for a small business loan from traditional lenders, including banks and credit unions. And in case you’re getting a business loan from a bank, be sure to equip yourself with the best tips on how to maximize your chances of loan approval.
However, if you’re looking for loans with higher interest rates but with fewer documentation requirements, you can submit your loan application to non-traditional lenders.
Loan Requirements
Once you’ve decided on the type of lender you want to work with, the next thing to consider is the loan requirements provided by your lender. Aside from the necessary qualifications, your lender will ask you to comply with the legal formalities such as the business license, franchise agreements, articles of incorporation, and many more.
Moreover, some lenders like Kabbage require you’ve been in business at least 1 full year before you can be eligible for a small business loan. If you haven’t met these requirements upon your application, you probably have a lesser chance of getting your loan approved.
Type Of Small Business Loans You Want
There are many types of small business loans to choose from. Depending on some factors such as your business needs, loan terms, and length of the loan, here are the most common loan options for your company:
- Work capital loans – These are loans that can be used to cover your business’ daily operations.
- Accounts receivable financing – This is an account receivable line of credit that enables you to get urgent cash, depending on the amount of your ARs.
- Small business term loans – These are loans that are payable within six months to 3 years to finance expansion, capital, and operations.
- Small business credit cards – Although some business owners are afraid to use credit cards, they can be a great help when it comes to financing your small business. The more you purchase using your cards, the more you earn cashback and rewards. To enjoy these perks, don’t hesitate to apply for a business credit card with flexible repayment terms.
Credit Rating
Before you take out a loan, ask for a copy of your credit standing, and assess whether it can affect your application. For instance, check it for mistakes and be sure to fix any discrepancies before submitting your application form. However, it’s important to note that if you’re able to fulfill your debt obligations, you probably have a good credit rating, which can help you successfully get loan approval.
Amount Of Loan Required
Another thing to consider when getting a small business loan is the amount of loan you require for your company. While the reasons for the application can be anything from expansion to the acquisition of assets and funding of business expenditures, you need to make sure that the loan amount is within your budget. In other words, it should be fair and reasonable enough not to give the lender any reason to falter on your credibility to pay.
Therefore, to ensure you’re taking out the right loan amount, think about your budget and your capacity to make repayments.
Conclusion
If you’re a small business owner, it’s best to keep these factors in mind when you apply for a small business loan. And by reading this article, you should now know how to determine the best loan type that works best for your company’s needs. And in case you want a piece of professional advice, don’t forget to talk to your financial advisor before getting a loan.
