SMALL BUSINESS LOANS

Ultimate Business Loan Guide

If you are thinking about buying a business, or getting some additional funding for your existing business, our ultimate business loan guide has all the information you need.

Reasons To Get A Small Business Loan

There are many different reasons for a business owner to get a small business loan. Many common reasons is to strengthen their cash flow, expand their business, purchase expensive equipment, or improve the business operations.

Should I Get A Credit Card Or A Small Business Loan?

The answer is both! Credit cards are nice to have for convenience, and a simple way to make small or large purchases quickly and easily. Though, credit cards can be a little pricey when it comes to the interest rates. The nice thing about a credit card is that it doesn’t usually require you to put up a piece of your business to an investor. On the other hand, a small business loan will typically have a lower interest rate. Many types of business loans are fairly easy to qualify for, even if you don’t have the best credit score.

Alternative Lenders and Hard Money Loans For Business

Alternative lenders, and hard money loans, are a great alternative for business owners that may not have an option to be financed through a traditional bank or get an SBA loan. These lenders provide different types of loans, credit cards, cash advances, and equipment financing.

Importance Of A Small Business Loan

Business loans are a viable way to keep operations going, and to keep the cash flow strong, especially in difficult business years for many companies. Business owners get loans for many reasons, such as a short term boost in cash flow, or to cover the costs associated with a much needed equipment upgrade. They are also used to grow and expand the business, or to consolidate high interest debt.

Benefits Of A Small Business Loan

There are a lot of benefits to getting a small business loan. With a business loan, you get to keep full control of your business. The bank or alternative lender typically isn’t going to tell you how to use the funds. When you have investors providing captial to your business, the may gain some control atleast in how you spend the funds, but also in how the business may be run, depending on how the investment arrangement is setup. The loan option does not. Your are still in complete control. Bank loans do come with interest and fees, but you aren’t giving up a stake or control of your business or profits.

Small Business Loans Are Quick and Easy

Another benefit is speed. Small business loan funding is fast. Raising money from venture captialists or investors can take months. But, when you borrow money from a bank, credit union, or online lender, it is very fast. Giving you the money that your business needs right away is a huge benefit.

Small Business Loans Have Lower Interest Rates

When it comes to interest rates, small business loans are much lower than you would get with many types of credit cards. The savings can be very large. If you have great credit, the interest rates will typically range from 2% to 10%. A business credit card may be about 14% and higher. Your credit score is a big factor in determining what your interest rate will be, and whether you will be approved for a loan.

Questions To Consider Before Choosing A Business Loan

As you start thinking about getting a small business loan, there are some questions to consider before you start applying for loans.

Some things to think about are listed below:

• How much money do you need? • What do you need the money for? • Do you want a short term or a long term loan? • How long has your business been in business? • What is the current financial status of your business? • Do you have any collateral to put up for the loan? • What’s your credit score?

Types Of Small Business Loan Lenders

• SBA Small Business Administration Loans • Conventional Small Business Bank Loans • Alternative Loan Lenders

SBA - Small Business Administration Loans

The Small Business Administration has several loan programs designed to meet the financing needs of most small businesses. In these loan options, the government isn’t directly loaning your business the money, but the SBA does instead setup some guidelines for loans made by its partners, consisting of banks, community development organizations, and microlending institutions. The SBA guarantees the loans will be repaid, which lowers the risk to its partners. There are a variety of SBA loan types to choose from that each have their own parameters and stipulations on how the money can be used and when it must be repaid.

The Pros and Cons of SBA Loans

The government guarantees 75% to 90% of the loan to lessen the risk for the lender, which enables the lender to approve more loans. The SBA loan terms are usually more favorable to borrowers, as the government’s goal is to help businesses succeed which strengthens up the economy. Some of the downside of an SBA loan is that you will have to do additional paperwork, there will be some extra fees, and it typically takes a little longer to get approved. You will probably also have to meet some requirements that are a little more strict in order to qualify for a loan from a traditional SBA lender.

Conventional Small Business Bank Loans

The biggest perks to getting conventional bank loans are that they can have lower interest rates, and the approval process is typically faster because there is not a federal agency involved. These types of loans will usually have shorter repayment times than SBA loans, and will usually require balloon payments that can be difficult to pay back for some businesses. It is also harder to get approved for a conventional bank loan. They average an approval rate of only about 23%. If you compare that with the approval rate for alternative lenders, which land near 61%, the conventional loan approval is a bit lower.

Alternative Loan Lenders

Alternative lenders have less stingent approval requirements. They typically offer online applications, and the approval decision process is usually done in a couple of hours and full funding in only a matter of days. The benefit of working with an alternative lender is that your company does not have to have a perfect financial history, you won’t be limited on hwat you can use the money for, and the loan can be approved and funded very quickly. The downside of using alternative lenders is that their interest rates are going to be a bit higher, and it’s important to really read the fine print in the loan documents to make sure that you are signing an agreement that you will really want to agree to.

Types of SBA Loans

The SBA has four types of small business loans, each of which are listed below: • SBA 7(a) Loan Program • SBA Microloan Program • SBA Real Estate and Equipment Business Loans • SBA Disaster Loans • Conventional Bank Loans and Alternative Lenders • Working Capital Business Loans • Business Equipment Loans • Merchant Cash Advance Loan • Business Lines of Credit • Professional Practice Loans • Franchise Startup Loans • Invoice Factoring Loans

SBA 7(a) Loan Program

The 7(a) loans are the most basic, common and flexible type of loan, and they are the most popular. This group of SBA loans guarantee portions of the total amount, cap interest rates, and limit fees. They are great for working capital, purchasing machinery, equipment, furniture, and fixtures. This is a great loan for purchasing land and buildings, building construction or renovation. It is also a good loan for establishing a new business or assistance in the acquisition, operation or expansion of an existing business, as well as refinancing old debt. The maximum loan amount is $5 million, and you can apply for this loan through a participating lender. Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets.

SBA Microloan Program

The SBA also offers small loans for new or growing small businesses. These loans can be used for working capital, purchasing inventory, supplies, furniture, fixtures, machinery, or equipment. These loans cannot be used to pay down any outstanding debts or purchasing real estate. The SBA does make funds available to intermediary lenders, which are nonprofits with experience in lending and technical assistance. The average microloan ranges from 13k up to 50k. The loan repayment terms can only go up to six years.

SBA Real Estate and Equipment Business Loans

The SBA also has a CDC/504 Loan Program that provides businesses with long term, fixed rate financing for major asset or equipment purchases, or to purchase or repair real estate. The loans are typically structured with the SBA providing 40% of the total project costs, a participating lender covering up to 50% and the borrower putting up the remaining 10%. Funds from a 504 loan can be used to purchase existing buildings, land, or long term machinery, or to build or renovate facilities. It can be used to refinance debts regarding an expansion of the business. These loans cannot be used for working capital or inventory. The loan amounts go up to $5.5 million, and have 10 or 20 year maturity terms.

SBA Disaster Loans

The SBA provides low interest disaster loans for businesses of all sizes. These loans can be used to repair or replace real estate, machinery, and equipment. They can also be used to purchase inventory and business assets that were damaged or destroyed in a declared disaster. These loans can go up to $2 million.

Conventional Bank Loans and Alternative Lenders

Conventional banks and alternative lenders have similar loans to those offered by the SBA, but also offer loan types that the SBA does not offer.

Working Capital Business Loans

Working capital loans are short term loans for businesses that need money to fund their daily operations. These loans are available from conventional banks as well as alternative lenders. The advantage of working capital loans is that it gives business the money to keep their operations running while they search for ways to improve and increase their revenue. The downside to these type of loans is they typically have a higher interest rate with much shorter repayment terms.

Business Equipment Loans

Convential banks and alternative lenders offer their own types of equipment loans. These equipment loans and leases provide money to small businesses for office equipment, machinery, tools, and vehicles. These loans make it so the business owner doesn’t have to pay for all of the purchases all at once upfront. Instead they can pay monthly payments for them. Equipment loans are often easier to obtain than other types of loans, because the equipment being purchased or leased serves as collateral for the loan itself, which lessens the risk for the lender. Equipment loans save the business much needed cash flow since they don’t require a large down payment. They may also provide for some great tax write off benefits.

Merchant Cash Advance Loan

This type of loan is based on the amount of a businesses monthly credit card transactions. You can typically receive an advance of up to 125% of your monthly transaction volume. The repayment terms will vary, but many lenders will take a fixed amount of money out of a business’s merchant account daily, and other lenders will take a percentage of daily credit card sales. The merchant cash advance loan is fairly easy to get, and typically only takes a few days to receive funding. Interest rates can run up to 30% a month, depending on which lender you use, and how much money you borrow.

Business Lines of Credit

A line of credit type loan provides a business with the money they need for day to day cash flow. The terms of these loans can go from 90 days on up to several years. With a line of credit loan you only take what you need, and only pay interest on what you use, instead of having to pay interest on the full amount. These loans typically have higher fees, and make it easy to build up a large amount of debt before you notice it.

Professional Practice Loans

Professional practice loans are exactly what they sound like. They are designed for those businesses that provide professional services like accounting, insurance, engineering, veterinary offices, and law and tax offices. These types of loans are used for purchasing a practice, real estate, or new equipment, as well as for renovating office space, or refinancing old debt.

Franchise Startup Loans

Franchise startup loans are designed for individuals that need a loan start their own franchise. These loans can be used for working capital or to pay franchise fees, buy equipment, and build stores or restaurants.

Invoice Factoring Loans

Invoice factoring loans are loans in which an advance is given to a small business for what they have in outstanding invoices. As you receive payment for those invoices, the lender is provided that money in addition to an extra fee.

Small Business Loan FAQs

Q. What is the easiest business loan to get? A. If you are looking to get a loan quickly, and you have a good credit score, the best loan for you may be to go with an online business loan lender. Q. What do lenders consider when reviewing a loan application? A. Lenders review several factors when determining whether they will approve a small business for a loan or not. Key factors are the business owners credit score, how long the business has been in business. Having a lower credit score may not prevent you from getting a loan, but it may increase the interest rate that you will pay for the loan, and you may have to get a hard money loan from alternative lenders. They will also consider the monthly revenue of the business. Q. Does it cost money to apply for a loan? A. Fees range from very low cost fees, and go on up from there. Lenders will go over these fees in detail, so you won’t end up with any surprises that may make the loan unaffordable for the business. Q. When applying for an SBA loan, what type of information will I need to provide? A. When applying for an SBA loan you will have to fill out several mandatory loan documents, and the bank may also ask for personal background and financial statements, business financial statements, the profit and loss statement for the business, projected financial statements, loan application history, ownership information, business licenses, business certificates, and tax returns. Q. What questions will I have to answer when I apply for an SBA loan? A. The SBA recommends that you be prepared to answer the question of why you are wanting the loan, how you will use the loan, what will be purchased with the proceeds of the loan, what other debts the business may have, and a list of your management team. If you are looking at buying a business, our Ultimate Business Buying Guide is a great resource, and also includes the name of a great business broker that can help you with all your Residential and Commercial property purchases or sales, as well as a business broker that can work with you to buy or sell a business as well. At ViralStudioX, we highlight products and services that you might find interesting. We frequently receive free products from manufacturers to test. This does not drive our decision as to whether or not a product is featured or recommended. If you click a link on this page, then go on to make a purchase, we might receive a commission – at no extra cost to you, and does not impact the purchase price of any products that you may purchase.