Starting your own business is an exciting prospect. New and fresh ideas pop up all the time and you want to turn those ideas into profits as soon as possible. However, the reality is you need money first to cover your expenses in establishing and running your place of business. For most people, this means you have to find outside financing. One way of obtaining that financing is through small business loans. Let’s take a look and see how small business owners can go about and acquire their own small business loans.
How much money can I expect to receive? How do I know if I qualify? What kind of interest is charged on a small business loan?
These are all common questions when it comes to small business loans, but you should start out asking yourself an even simpler question: why do you need this loan? Are you looking for funding to start your business from the ground-up? Or maybe you need an extra bit of cash for an emergency fund? It’s a guarantee that asking why you need the loan will be one of the first things that comes out of the lenders mouth. The best thing you can do is be honest, as what you need the loan for will determine the best kind of loans for you. A business owner looking for help to cover his day-to-day expenses will have different needs than an owner looking for capital to grow his business with. Know what you need your loan for before you go about looking for one.
Picking the Right Type of Loan
Unfortunately, small business loans are hard to come by if you are just starting your business. Lenders like to see some kind of cash flow in your business, so they know they aren’t just throwing away money to someone whose business isn’t profitable. That’s ok though, you still have options such as crowdfunding, business credit cards, investors, and microloans.
For a business with a history of revenue, typically for more than a year, you will have more options. SBA (Small Business Administration) loans, term loans , business lines of credit, and invoice factoring are all more likely to be available to you. Most lenders will go over these options with you, and work to find the one that best suits your business. It pays to do a little research beforehand as well, so you know which type of money lending service might benefit you the most
Choosing a Lender
You don’t have to go to a bank to get a small business loan. Online lenders have become increasingly popular, and there has been a growing number of non-profit microlenders in recent years. In general, exploring all your options will provide you with the best results. You want to find a loan you qualify for, with the lowest available APR, so long as you can afford the payments. If it sounds familiar it is because that is sound advice for when buying a car as well.
If you have good credit, can provide collateral, and don’t need cash immediately then using a bank makes the most sense. They generally have the lowest APR, but the loans also can take the longest to get approved, averaging 2-6 months. The average SBA loan size is about $371,000.
Do You Qualify?
There are few important factors in determining if you will qualify for a small business loan. Your personal credit score is first on that list. In general, banks want to see a credit score higher than 680. If your credit score is below that line, you might want to try online lenders specific for business owners with bad credit.
The length of time and amount of money that your business generates also will impact your ability to qualify. Lenders want to see that you have stuck around for at least a year, with many banks requiring 2 years of operation to qualify. Your revenue will also determine if you can get a loan. Depending on the size of your business, lenders want to see at least $50,000 to $150,000 in annual revenue. Should you meet the requirements, you have a great chance of being approved for a small business loan.
For many people, owning your own business is part of the American dream. Qualifying for and getting a small business loan can help turn that dream into a reality. If you are successful in paying it off, a small business loan can go a long way to rebuilding your credit, or even help establish citizenship. If you can afford the payments, there is no reason not to try and expand your business with a small business loan.