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:
Availability
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.
Great flexibility
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.
Tax exemptions
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.
Other types
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:
Resumes
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.
Banks statements
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.
Income statements
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.
Balance sheet
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.
Tax returns
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.
Conclusion
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!