Small Business Loans Explained
One of the barriers to many small businesses is having access to funds that allow them to expand. Other companies will need a loan to keep them going through tough times, while others might require that additional funding in order to get off the ground.
Many great lenders allow you to get a small business loan these days. This guide will showcase all of the aspects of getting a small business loan and will assist you in figuring out the best type of option for you.
What is a Small Business Loan?
A small business loan is a way for a small business owner to get their hands on some financing. This type of loan allows them to get funding without giving up equity in their business.
Many of the leading lenders in the country will offer small business loans. These will usually be products that are particularly conducive for those who own more minor types of businesses.
There are also a few different types of small business loans that you can get. A lender will look at various aspects of a business before approving a loan. The terms and requirements can vary depending on your circumstances.
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Are There Different Types of Small Business Loans?
There are various types of small business loans that a business owner can get. These will each have their own specific focuses. Here is a look at the most popular types of small business loans:
SBA Loans
Small Business Administration (SBA) loans see the lender taking on less risk as the government guarantees a part of the loan. This also, in turn means that the borrower can often get better terms.
The size of SBA loans often starts at $5,000 and goes as high as $5 million. The payment periods can vary widely and can take a bit longer than other types of loans to get your hands on the funds.
Cash Advance Loans
These types of business loans see. Lender giving you a cash advance in return for getting a cut of future sales. This means that payments will tend to be lower when there are low sales and vice versa. These loans can range between $5,000 and $250,000.
Business Line of Credit Loans
Many small businesses like getting. Aline of credit as it provides a great level of flexibility. You will have the ability to borrow up to a certain level, but you only have to pay interest on the money that you end up actually borrowing.
The rates are usually lower than credit cards, and the total sums available to borrow will be more significant. A line of credit can typically start at $1,000 and go up to $1 million.
Business Term Loan
This is when a small business owner gets a lump sum from a lender that has monthly repayments. The interest rate will be fixed, and the term will typically be one to five years. This type of loan will have limited personal liability in the case of default. In many ways, they are similar to a personal loan.
Invoice Factoring
Invoice financing allows a business owner to generate improved cash flow. This is achievable by borrowing funds against the amounts that clients currently owe the business. It is a short-term type of borrowing where the lender effectively buys the unpaid invoices of a company up to a certain proportion.
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Most Important Requirements for Small Business Loans
Lenders will require plenty of information when considering a small business loan application. They want to avoid risky situations whereby they hand out loans to a business that might be failing and not likely be able to ultimately pay back the loan. Most lenders will look at some or all of the following information:
- Length of time in business
- Business and personal credit score
- Yearly revenue
- Bank statements
- Business and personal tax returns
- Reason for the loan
- Personal background
- Business plan
- Collateral
- Relevant legal business documents
Depending on your information, you will likely have access to different types of rates and loans. If a lender deems a small business to have a low risk of defaulting on their loan obligations, you can often get better rates than you otherwise might.
How to Apply for a Small Business Loan
Many great lenders offer various types of small business loans. You can find a very reliable option for your specific needs. The main difference will be the traditional types of lenders with physical branches and the modern lenders that operate in an online environment. You can figure out which of these options will be best for you.
We have reviewed each of the leading lenders, so you don’t have to. Once you choose a particular option, you can begin the process of getting a small business loan.
You will have to provide an array of documents relating to your business. This includes bank statements, company revenue figures for the past few years, and detailing how you will use the funds.
The lender will assess all of the provided information and decide what terms to offer you. The time it takes to get approval for a small business loan or access the funds will depend on the specific lender.
Conclusion
Small business owners have never had a better range of options to finance their business. You can now determine which type of loan is best for your needs and find a top-quality lender that can cater to your needs. This can all be done in a fast and efficient manner.
*The required FICO score may be higher based on your relationship with American Express, credit history, and other factors.
**All businesses are unique and are subject to approval and review.
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