Small Business Loans
Opening a business is not easy - or cheap at all. Starting this adventure can be exciting but scary at the same time, because you never know when money will not be enough or when you will need to make a new investment in order to keep growing. This is when a small business loan can be a lifesaver for you and your entrepreneurship projects.
How does a small business loan work?
A small business loan is a type of loan oriented for small businesses and can either help you get started or address specific needs along the way. Lenders offer them based on a set, pre-specified agreement to repay that sum plus interest over a period of time. It is very similar to a personal loan but designed for business purposes.
Nowadays, there are more and more people investing in new business ideas and ways of creating new ways of being their own boss. There are emerging everyday more and more opportunities to grow in the business way in new formats such as e-commerce, start-ups, in-app businesses, etc. This is why the market of small business loans is constantly evolving as technology, regulations, and preferences shift and the variety of loans keeps getting more complex but at the same time more suitable to entrepreneurs needs.
Types of small business loans
> Term Loan: A.K.A. Long term loan, is a good loan for business owners with good credit that require large amounts of funds. The loan length can range between 1-5 years with scheduled monthly payments and it is the most common loan for regular businesses that need money for regular operations, renewals or other expenses. To make sure you will repay the debt, lenders usually require you to see a track record of success before approving your loan application.
> Short-term loan: They are a business loan version of a short-term personal loan. They are fast funded with smaller amounts than the long term one. It is offered for people aiming to bridge cash flow gaps, specific emergencies, pay off higher-interest debt or take advantage of new business opportunities. The good thing about these loans is that they do not require a great credit score, plus the procedure and paperwork is less and easier to handle than other loans.
> Equipment loan: This loan has been designed to finance the purchase of equipment needed for the operation of a business, which will act as a collateral for the loan. These secured loans are a good option for new businesses because it means less risk than getting it to yourself.
> Invoicing financing: This is another secured loan that gives owners cash on demand based on outstanding invoices or money owed to the business. The invoices act as collaterals and they get paid, the lender will give you the remaining amount of them after taking the borrowed amount plus the interests and fees.
> SBA Loan: These are long term loans offered by some lenders and they are partially guaranteed by the Small Business Administration (a governmental entity). The amounts offered with these loans start from $5,000 to $5 million. In length, they can be as short as 5 years or as long as 25 years.
> Line of credit for business: They work very similar to a credit card but for businesses, which means that you only pay interests to the amount you use. It is good to have some pocket expenses that your business could require or to cover expenses when going through a rough moment
Steps to get a small business loan
- Decide what do you need the finance for: Make sure you have your motives very clear either if it is for starting a new business, cover daily business expenses, buy equipment, etc.
- Find the type of loan for credit your business needs: Analyzing the type of credits that are offered in the market can help you have a clearer view of what your business needs.
- Choose your creditor fit: Research about the lender available for the type of loan you want and decide if you want a traditional bank, an online lender, maybe a particular investor or a nonprofit organization for entrepreneurs.
- Ensure your eligibility: This not only means to make sure you are eligible for the type of loan you will apply for but also check if you will be solvent enough to face the debt with responsibility and discipline.
- Gather paperwork and apply!: Collect the forms your future credit requires, apply and go for it!
Features of a good small business loan
✅Collateral-free: Even though some business loans use your business equipment or invoices as a collateral, none of them require you to put anything personal as a collateral, unlike some other type of loans.
✅High Fund Value: Most business loans have large amounts available for customers, which is not offered by traditional loans that easily.
✅Fixed Interest Rates: Which means that the interest you pay will remain the same during your loan’s term.
✅Fast processing: Lenders tend to be very quick when processing the paperwork and they approve it as soon as they make sure everything is according to their requirements.
✅Online option: There are some online lenders that do everything through their platforms and require very minimal paperwork to get approved.
Requirements may change depending on the type of loan and the lender you pick to work with. But there are three main aspects to keep an eye on because they may be requested at some point in order to offer you the fit you need:
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