Small business owners tend to come with fairly resilient stocks.
After all, running your own business isn’t for people who are easily scared. Even under perfect circumstances, the business grows; its reputation is brilliant – you face a million small decisions that you will need to make with confidence.
Taking out a small business loan creates about a million more.
How much money do you need How much money can you get? Do you need guarantees? What is the guarantee?
Whether you’re a one-man business or leading a team of 100, here’s everything you need to know about getting a business loan.
Should I Get a Small Business Loan?
First of all: Getting into debt brings uncertainty and risk, and small business loans are no different.
If you are a new business owner, an accountant (and also a financial advisor, preferably) can help you determine what loans you qualify for, how much debt you can afford, and if it is. it’s a good idea to take it or not. out in the first place.
You will also need to think about your specific business needs before submitting a loan application. Is your business still taking off? Are you in growth mode? Do you need extra cash to keep payroll and other expenses out of the red? Find your “why” and get ready to write it down.
Types of small business loans
Small business owners have many different financing options.
A “line of credit“ is popular, although technically not a loan at all. This borrowing option works much like a credit card, with lower interest rates and higher utility (some small business owners use lines of credit specifically to pay their vendors who don’t accept cards. credit). Lines of credit can be used to pay just about any business expense, up to a dollar limit, and interest is paid on the funds withdrawn.
“Installment loans” or “term loans” follow a more traditional borrowing structure. The total amount is paid in a lump sum upon signing the contract and is linked to an agreed repayment period. Short-term loans can be repaid in a matter of months; long-term loans are often repaid over several years.
Other types of small business loans include microloans, equipment loans, start-up loans, and commercial mortgages.
SBA Loans: What Every Business Owner Should Know
Many loans (of all types) are guaranteed by the Small Business Administration (SBA), which works directly with banks and other lenders.
SBA loans make the relationship between borrowers and lenders less risky by guaranteeing a portion (usually around 50% to 85%) in the event of default. For lenders, taking out an SBA-backed loan helps prevent predatory lending and aggressive interest rates.
Small business owners seeking disaster relief can also apply for an SBA loan. The Paycheque Protection Program described in the CARES Act was created specifically for businesses affected by COVID-19, but SBA emergency funding is nothing new for 2020 – hurricanes, wildfires and other natural disasters have sent from small business owners to the SBA for years.
How to apply for a small business loan
Step 1: Start with an extensive search. The ASB website, your community bank or credit union, and Google are all great resources for determining what type of financing is available. Use a spreadsheet to track what you find – keep a close eye on the interest rates, repayment terms, and qualifications of every lender you come across.
Step 2: Gather all your documentation. The application process varies, but you will likely be asked to provide a series of personal and business financial statements, a credit score, tax returns, a copy of your business license, as well as a application form– at least.
Step 3: Choose the best lender for you. Some small business loans are easier to obtain than others (type “bad loans” in Google page after page of examples). Online lenders like Kabbage and Lendio can disperse money in a flash, but beware of the sky-high interest rates and high (sometimes hidden) fees scattered around the fine print.
Bank-backed financing is generally a safer bet, although it comes with greater hurdles. Bank of America, for its part, requires businesses to be at least two years old and have a minimum annual income of $ 250,000 to be eligible for many of its loans.
How are “guarantees” factored into small business loans?
To get a lower interest rate, some business owners provide lenders with personal or business property as collateral. These are called “secured loans” and come with an additional layer of risk: if you cannot repay your loan at the end of the agreed term, those assets will be seized and sold.
For small business owners, warranty typically includes inventory, equipment, and commercial real estate.
What if my small business loan application is not approved?
People are turned down for small business loans All the time. It can be daunting, but it doesn’t have to be the end of the road.
If your application was denied due to a low or no business credit score, read on how to strengthen this number. Finding a co-signer, someone who agrees to take over your loan payments if you don’t make them, can also improve your chances.
Consider hiring a small business coach or consultant to help you prepare for your next job application. Goal, a non-profit organization, offers free advice to businesses across the country. And if you’re a woman, person of color, or other small business owner with systemic barriers to funding, organizations like the Foundations for corporate equity and the Local initiatives support company are full of additional resources.