Small Business Loans
Small businesses may be the engine of our economy, but many small business owners view the lending process as complicated and frustrating. Too often, growing enterprises find themselves shut out when they attempt to obtain small business loans. In theory, it should be difficult to obtain funding--lenders are in the business of making money, not providing charity. Still, there are many ways to improve your odds of getting a loan. Here are some things to consider.
Put yourself in the lender's shoes--why should they lend you money? When applying for a loan, treat it as if you're applying for a job. Instead of a great resume, however, you need a stellar application. That means understanding your financial situation and deciding what you can use for collateral, which might include your house. A business person who does the latter shows they believe in their business. Cash flow and credit quality are other key factors. And dress professionally; if you look like you don't need the money, you're more likely to get it. Figure out how much money you really need. Businesses too often seek more money than they really need and, the more you seek, the more likely you will be rejected. Learn from your mistakes.
If one lender rejects you, figure out why. When you go to the next small business lender, address that deficiency. Those with poor credit in a business-to-business environment that have receivables can use them as collateral. Alternative lenders, such as so-called Internet lenders, will charge higher interest rates, but generally have more relaxed standards. Always consider--in most cases it should be your first consideration--working with Small Business Administration-backed (SBA) lenders. Many businesses incorrectly assume they aren't eligible. SBA loans often feature low interest rates and generous repayment terms. Also note that just because one SBA lender turns you down, not all lenders will do likewise. Know what you're getting into. That means learning the annual percentage rate (APR) of the loan. Know what the fees will be, as well as any prepayment penalties. Be an informed shopper. As mentioned earlier, online lenders may provide funding (and quickly) if other alternatives fail, especially for those with bad credit. Aside from higher interest rates, Internet lenders are known for onerous terms and poor transparency, so be sure you really need the money--and can pay it back--if you go this route. Small banks are likely to be more helpful than bigger banks that prefer working with larger customers.
Small business financing (also referred to as startup financing or franchise financing) refers to the means by which an aspiring or current business owner obtains money to start a new small business, purchase an existing small business or bring money into an existing small business to finance current or future business activity. There are many ways to finance a new or existing business, each of which features its own benefits and limitations. In the wake of the financial crisis of 2007–08, the availability of traditional types of small business financing dramatically decreased. At the same time, alternative types of small business financing have emerged. In this context, it is instructive to divide the types of small business financing into the two broad categories of traditional and alternative small business financing options.
Advertiser DisclosureSmall Business Loans: Compare FinancingSmall business loans can be critical to your success as a business owner. Traditional banks are no longer your only option. From SBA loans to business lines of credit to invoice-based financing, you now have access to many options through online lenders. Find the business financing product that is best for you. Learn about loan/product types.Business loan typeBest forAPR rangeSBA loansExpansion, longer-term investments6.5% - 9%Business term loansLarge one-time expense6% - 99%Business line of creditOngoing working capital expenses8% - 99%Invoice factoringFilling cash-flow gap16% - 77%
Small-business loans are typically issued only for businesses with a year or more of history and revenue. Among the financing options for entrepreneurs who qualify are U.S. Small Business Administration loans, term loans, business lines of credit and invoice factoring. Startups operating for less than a year can consider other financing options.
Small business loans can be critical to your success as a business owner. Traditional banks are no longer your only option. From SBA loans to business lines of credit to invoice-based financing, you now have access to many options through online lenders. Find the business financing product that is best for you. Learn about loan/product types.Business loan typeBest forAPR rangeSBA loansExpansion, longer-term investments6.5% - 9%Business term loansLarge one-time expense6% - 99%Business line of creditOngoing working capital expenses8% - 99%Invoice factoringFilling cash-flow gap16% - 77%
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The sources of debt financing may include conventional lenders (banks, credit unions, etc.), friends and family, Small Business Administration (SBA) loans, technology based lenders, microlenders, home equity loans and personal credit cards. Small business owners in the US borrow, on average, $23,000 from friends and family to start their business.