Let us face it! Whether you run a startup or an existing business, financing plays an important role. Indeed, it costs money to start a business and to grow it. Also, whether you are running it alone or with partners, you will need funding at some point.
Now, here is the challenge! Getting funding for small businesses at favorable terms from lenders is not easy. So, in this article, we explore small business loans as an option, the benefits, types, and what you need to get to borrow such loans.
What is a small business loan and what are the benefits of getting?
A small business loan is a form of debt borrowed mainly for growth. Loaneeds often repay it with some small interest. The amount and repayment terms, including the period, are agreed upon by the borrower and lender. For startups and growing businesses, borrowing is a common way to get financement capital.
Notably, lenders of small business loans differ in how they advance credit to small businesses. They all, however, try in most cases to offer innovative finance solutions. So, as a business owner, your choice of a specific lender should be guided by your exact needs. Most importantly, you should also consider the terms and conditions.
Depending on the nature or amount of capital you need, you can borrow from different lenders. The various funding sources include government financing programs, banks, and non-bank small business lenders.
As a startup business, opting for easy-access small business financing will push your small business to grow to its full potential. Arguably, there are many benefits associated with getting financing from non-bank small business lenders. Indeed, while most of them resemble traditional banks, they offer customized products. For instance, unlike banks, non-bank lenders often attach competitive and cheaper interest rates. They also help businesses that are unable to get funding from banks. But that’s not all about them!
Non-bank lenders also have another unique thing. They do not have large hierarchical structures. That means you can get funding within quick turnarounds. Further, they have more lenient methods of getting repayments than traditional banks. With that said, here are the benefits of getting a small loan for your business from non-bank lenders:
Many providers of small business loans often advance their loans instantly. Most of them have the option of online loans. So, you can open a checking account online and get your loan. It is, therefore, easy to access loans from non-bank lenders compared to others.
Relatively low-interest rates
Compared to other types of loans that banks and other lending institutions offer, interest rates attached to loans from non-bank lenders are relatively lower. You, therefore, save on repayments and grow fast. Remember that when assessing loans, one thing to consider is the amount of interest chargeable.
Flexibility comes in the sense that small business loans come in many types. As a business owner, such availability gives you the flexibility to choose the most appropriate type for your business. Some are for startups, others for expanding, and even other requirements such as upgrading your business facilities.
Ease of repayment
Repayment options for small business loans are some of the best you will ever find. Non-bank lenders ease it because they understand the challenges small businesses and startups often face.
Depending on the nature of the business you are running, there are instances where the proportion of profit you utilize in repaying the loan is exempt from tax. You need to be familiar with the income tax laws applicable for your business to enjoy such benefits.
Opportunity to grow your business
Small business loans allow you to meet the needs of your startup or growing business. With such funding, you get money to pay labor and adopt the right technology. Such are the resources you need to propel your business to the next level. You can also use it to acquire the right equipment and other needs for your business.
Types of small business loans
Business loans usually serve the same purpose of facilitating the expansion of operations. But that does not mean they are the same. They often come in different types. Your choice of any class depends on what you intend to do and the lender you select. Here are the major types of small business loans:
Secured and unsecured loans
Small business loans can be secured or unsecured types. Secured loans require that you have collateral or an asset as a security. Your security can also be bonds, personal property, or stocks. With such securities, you can borrow higher amounts.
On the other hand, unsecured loans do not need collateral or assets. You, however, need to have a higher credit score to get them. Also, given their unsecured nature, it means that lenders can only give you relatively small amounts.
Short and long-term loans
Loans can also be classified based on the length of time involved in repayment. On this basis, small loans can either be short or long-term loans. A short-term loan generally has a few months of repayment time and is valued at less than $100,000.
Long-term loans, on the other hand, can be repaired for years. The amount is also relatively high. In most cases, you might need collateral, or you must have a well-established business. Further, a good score in your line of credit and a well-prepared business plan is desirable to get a long-term loan.
Some lenders can also classify their loans based on other factors. For instance, classification can be done based on the type of project or work the loan is used for in a business. Under this approach, these types of loans can include:
- Equipment loans
- Invoice financing loans
- Commercial real estate loans
- Equity loans financing
Here’s what you need to access small business loans
Providers of small business loans often require some documents or information during loan applications. Such a requirement complies with regulations to avoid bad credit loans. Also, the information you provide helps them to understand your business.
From the information you provide, lenders can determine some other things. They include the amount and repayment duration that is appropriate for your business. So, here is what they often ask you to provide:
Loan providers will often ask for resumes, specifically from all owners and key employees. So, you need to draft these carefully. You need to put them as part of the documents you will use when making your application.
Just as is the case when applying for personal loans, you need to provide bank statements for your business when applying for small business loans. These statements help your lender see the cash flow in your startup or growing business.
Your small business’ income statements provide helpful information necessary to determine whether or not you qualify for a loan. More specifically, the reports help your lender get a picture of your expenses, cost of goods, working capital, and income.
Your business’ balance sheet is vital when evaluating your total assets and liabilities. They need such information when explaining your assets and even your liabilities. Lenders often feed this information to their ROI calculator when determining the among to lend you as a loan.
Any serious lender that adheres to loans conditions will always ask you to provide your tax returns. It helps them confirm that the incomes you report in your CRA match those that you claim. That means any difference between the two can disqualify you from getting small business loans.
Without a doubt, getting a loan to finance your startup or growing business is necessary. All you need is to provide what lenders require from you. Once you do that and demonstrate that you are a credit-worthy business, you are sure to get it.
Needless to say, there are many benefits of getting a small business loan. It helps you grow your business, and the repayment terms, in most cases, are unique to meet the specific needs of your small business. For ease of access, you need to build your credit score. Most importantly, always strive to meet the needs of your lender.
We hope that we’ve been of help to your flourishing business. With perseverance and good financial progress, you have an enterprise with a bright future. Always start small and build up from it, and never give up. Good luck with your business!