Everything Small Businesses Need to Know About Business Loans

For many entrepreneurs, transforming a business idea into an active business, or simply moving a growing company to a new level, often means one thing: funding. That’s where small business loans come in. Small-business loans can help you hire employees, build inventory, recruit suppliers, upgrade equipment, or just cover cash flow demands in slow times. However, not all loans are the same, and knowing all the options available to you can help save time, money, and headache.

In this guide, we’ll discuss everything you need to know as a small business owner about business loans: how they work, what type of loans are available, and how you can improve your odds of receiving loan approval.

What Is a Small Business Loan?

A loan for small business is a financing type, offered by banks, credit unions, or alternative lenders, specifically to utilize by small to medium-sized enterprises (SMEs). Depending on the lender the loan can be secured (assured by collateral) or unsecured. All loans need to be payed back over time, often in the form of interest. Regardless if you are starting a new venture or continuing a live business, a loan can help you realize your goals.

Why Small Businesses Need Loans

There are essentially an infinite number of reasons that a small business may seek financing. Common needs include the following:

• Buying new equipment or machinery
• Opening up a new location
• Hiring and training new employees
• Stocking up inventory to cover a busy season
• Covering cash flow lapses

In the end, the right loan can be used to support small business finance needs, allowing you to smooth your business operations and create long-term growth.

Types of Small Business Loans

It is important to understand the different types of loans so that you can determine which type is best for you. Here are the most popular types:

Term Loans

A term loan is a traditional loan where you get a lump sum of money and you will pay your loan back over a set period of time with fixed or variable interest. A lot of the term loan money goes to larger higher cost items, such as providing funding to purchase real estate, equipment, or to do a major renovation.

SBA Loans

Small Business Administration (SBA) loans are managed by the U.S. SBA. Because these loans offer more favorable terms and lower interest rates, they are appealing options. They take more time to establish because there is more documentation that is required. In the end, if you meet the criteria for an SBA loan, they will be the best option available.

Business Lines of Credit

An established line of credit is a flexible financing solution that allows you to only borrow what you need at the moment, up to a borrowing limit. Business lines of credit can be the best solution for managing your short term expenses or emergency expenditures.

Equipment Financing Loans

Created to specifically help purchase equipment, equipment financing loans are often secured by the equipment itself, which means that they are easier to access.

Merchant Cash Advance

A quick funding option, Merchant cash advance financing offers to lenders who will provide capital in exchange for a percentage of your credit card sales every day. Merchant cash advances are more often the expensive option, and works better for businesses that have a good amount of card revenue.

How to Qualify for Business Loans?

Lenders will take several things into account when determining whether to accept your loan application because the application process is time-consuming and lengthy. You will want to keep in mind the items listed below when applying for and wanting to get approved for a business loan:

• Credit Score: Your personal credit score, and business credit score matters. The minimum credit score for most traditional loans is 650.
• Time in Business: Many, if not most, lenders want to see at least 1 or 2 years in business.
• Business Plan: A well thought out business plan that you can provide lenders, will show the lenders that you understand your market and have a plan for growth.
• Collateral: If you can provide any collateral or pledge an asset that as security to your loan, you may be able to access a larger loan or lower interest rate.

Advice for Selecting the Correct Loan

Locating the best loan has to do with more than just low-interest. Before signing, consider the following:

• Repayment Terms: Are you comfortable affording the monthly amounts without experiencing cash flow problems?
• Fees: Make sure you acknowledge any fees related to the loan, such as origination fees, late fees, and or prepayment fees.
• Speed: Several lenders will have fast approval times; however, with more cost incurred. Select based on urgency.
• Source Reputation: We recommended you only deal with lenders that have solid consumer reviews and use open lending practices.

Conclusion

Securing funding from a small business loan is exhausting, but armed with these insights, it can be sobering. With every piece of knowledge about securing a loan whether it is the right type of loan, preparation of documents, or repair of credit, it can enhance your chances. Regardless of whether you are starting a business or taking one to new heights, financing is fundamental in the business journey. If you need help deciding or searching of structured loan options, Sole Capital Group offers sound advice and strategic solutions to support your business. Business owners need to have a firm grasp on their options and plans so that they can make the best financial decisions for their organization--- and that is the first step toward sustainable growth in the competitive landscape of small business.