Hey, there small business owner. I hope you’re in the mood for money because we’re going loan shopping! I won’t lie, it can be a long complicated process, but I’m here to help you decide which loan looks best for you.
Ready, Set, Goals. Before we go looking for your perfect loan, there are two factors to consider. How much money do you need? Nail down a specific number, like down to the decimal. Keep in mind the bigger the loan, the more interest you’ll pay.
The second thing, remember that a loan is a debt. Consider all of your options before taking one on. Mulled over these two points? Great. Let’s shop… till we drop. Here I have six different loans and financing options for you to try on.
Small business loans Idea
Business financing can be a long and confusing process. But rest assured, with the following roadmap, you can easily manage the process and find the loan terms—whether long-term or short-term loans—as well as the monthly payments that best suit you.
Here are the four steps we’ll follow together:
- Know the types of small business loans
- Learn how to get a small business loan
- See if you qualify for different loans
- Apply for the best loan for your needs
Types of small business loans
- SBA loans
- Traditional business loans
- Business lines of credit
- Invoice factoring
- Specialty loans
- Loan alternatives
This little number is called a small business administration loan. They’re funded by small business lenders but backed by the federal government, which means you’re more likely to get approved. They can range anywhere from $500 to $5.5 million dollars and are known for their loan interest rates, which make them a hot commodity among loan shoppers.
Going for a more traditional look? Try a traditional business loan. They’re versatile and come in all different sizes. They’ll fund general business purposes or more specific investments. Business lines of credit. You apply for a specific amount of money and take out however much you want, only paying interest on that amount. Pretty cool.
Alternatives: Microloans, marketplaces, and credit cards
If you can’t qualify for a business loan or line of credit, you may consider loan alternatives: microloans, business loan marketplaces, or credit cards.
But it might limit your ability to get financing from other sources, so make sure you’re comfortable with it. Invoice factoring. It’s not exactly a loan, more of a financing option. It’s like a consignment store. You sell your accounts receivable to a third party and they immediately pay your business a big chunk of the invoice amount.
How to get a small business loan
- Determine how much money you need
- Decide if a loan is the right method
- Select the type of loan that fits best
- Review the lenders available
- Review each lender’s requirements
- Collect information and apply
Fast cash, but you have to pay them a fee so you’ll never get the full amount listed on your accounts receivable. Specialty loans. These types of loans are hard to get your hands on. They’re for groups and causes that are underserved so the majority of small businesses aren’t eligible. Nothing suiting your fancy?
Here are some alternatives. Microloans, marketplaces, and credit cards. They tend to have a higher interest rate but could be a good option if you’re not up for a traditional loan. Before you take home the loan of your dreams, you’ll need to get some basics ready. Your business’s credit history. Like a pair of socks, they should be as clean as possible and up-to-date. Your business history and financial statements, five years’ worth if possible.
How much money do you need?
It may seem obvious that you should determine how much money your business needs before you start looking for a loan. But, don’t skip this step for three reasons.
Your business plan. What’s the occasion? How are you going to use your new loan? And collateral, is a fancy word for an asset your business owns, like a diamond necklace. In the case you can’t pay off your loan, lenders need to know how they will get the money back they loaned you. By now, you probably have your eye on a special loan.
Let’s find a lender. Lenders make money off interest rates, so they might try to sell you short. Push back, bargain, haggle. Come prepared to negotiate and let them know you’re shopping around. Look at their requirements; most require collateral. Remember that diamond necklace? If they aren’t happy with your collateral you might have to find a co-signer for your loan. Now, collect all your information and apply.
What type of loan is the best fit for your business?
As mentioned, there are plenty of loan options for your business: SBA loans, traditional small business loans, specialty loans, lines of credit, and loan alternatives. How do you determine which one is the right fit for your business? Go through a list which each loan to determine suitability for your business:
- Interest rate
- Loan terms
- Impact to credit
The info you need varies among lenders and it depends on your business history. But in general, the more info you have ready, the more prepared you’ll be and the more likely you’ll be approved for your loan. Who doesn’t love a fast checkout? There you have it. A day full of loan shopping in the bag.
Qualifying for a business loan
- Basic loan requirements
- How to improve your business credit score
- Tips for getting approved
Some baseline requirements exist to secure a loan:
- Credit history
- Business history
- Business plan
Applying for a business loan
Once you have narrowed down the loan type for your business and determined you are qualified, it’s time to apply. To apply for a small business loan, you need:
- Reason for the loan
- Credit history
- Business plan
- Annual revenue
- Tax returns
- Financial statements