A small business loan can be a handy tool to finance your business operations and growth. But, getting a small business loan isn’t easy. You’ll need a strong business plan, good credit history, and a steady cash flow. You’ll also need to prove that the business is viable and worthy of a loan.
Most banks require small businesses to have 2 years of operating history, high credit scores, and the business to have at least $75K in annual revenues. And, banks don’t give out loans based on startups, at least not yet.
While traditional banks might be reluctant to issue a business loan, there are still other small business lenders you can turn to. Peer-to-peer lenders are a good alternative to consider when needing a small business loan.
Peer-to-peer (P2P) lending connects borrowers to potential lenders. The lenders featured on P2P lending sites can be individuals, such as investors, or institutional investors.
The borrowers and lenders can agree on the terms of the loan, including interest rate, duration, and repayment schedule before a loan is issued. In other words, the borrower and the lender set the rates and terms.
A peer-to-peer lender doesn’t actually lend money to the borrower. Instead, the lender offers to invest in the borrower’s loan. Once the loan is issued, the funds are disbursed to the borrower.
The borrower makes a payment to the lender for a percentage of the loan’s principal and interest. The lender then makes a payment to the borrower.
What is a small business loan?
If you’re currently seeking a loan for your business, you probably don’t have a lot of time on your hands.
Understand your credit. In order to receive a small business loan, you’ll first have to submit comprehensive credit applications. Your lender will look into items such as your credit score, income, and debts.
Find the right lender. Luckily, there are tons of lenders willing to give small business loans, so it’s a good idea to shop around.
Establish a repayment plan. The terms of your loan will depend on your intended use. If you’re looking to purchase inventory, for example, you’ll probably pay a higher interest rate.
Understand the costs. If your business is already established and your credit is already good, you shouldn’t have much of a problem securing a loan. However, if you think you might need a small business loan in the future, you might want to weigh your options carefully.
What are the different types of loans available?
Learn about all the different loan options out there and what to watch out for.
Personal loans. Personal loans help you get money without having to put up collateral or invest.
Home equity loans. Home equity loans let you borrow money against the equity you have in your home.
Credit cards. Credit cards are similar to personal loans, except that you usually pay interest.
Home equity lines of credit. Home equity lines of credit give you access to credit at a fixed amount.
Commercial loans. Commercial loans are designed to help businesses get the money they need.
The pros and cons of each type of small business loan
The first decision you’ll face when shopping for a small business loan is whether to go with a bank, credit union, or an alternative lender.
Banks and credit unions. Banks and credit unions offer similar services for small business loans. Both offer competitive rates, and both are likely to offer loans up to $250,000.
Alternative lenders. Alternative lenders may offer loans up to $1 million and charge higher interest rates than banks and credit unions.
Small businesses. All small businesses benefit from having a small business loan. But certain industries, like retail, are prime candidates for small business loans.
How to find the best small business loan for your business?
Finding the right small business loan for your business comes with a handful of considerations. This guide sheds light on how to find the best small business loan for your business.
Check out the local library. The small-business section of public libraries typically holds a plethora of resources including books, magazines, local directories, assistance with writing business plans, and information on small business loans.
Take advantage of online small business lenders. Many online lenders cater to small businesses making loan applications online. Online lenders have streamlined their application process making it more convenient for entrepreneurs.
Consider SBA loans. The Small Business Administration (SBA) offers several loan programs for small businesses including 7(a) loans. 7(a) loans are geared toward businesses that plan to develop and grow.
Consider your local bank. Most banks have a lending department designated for small businesses.
Consider alternative lenders. Alternative lenders offer small business loans of up to $1 million.
How to apply for a small business loan?
If you’re looking for a small business loan, but things seem to be going awry, check out this guide.
Step 1. First, create a list of potential lenders and go over each one’s eligibility requirements.
Step 2. Next, start completing the application.
Step 3. Get feedback from your references.
Step 4. Show your business plan.
Step 5. Get your business license.
Step 6. Provide proof of income and tax returns.
Step 7. Obtain a credit report.
Step 8. Obtain a business license.
Step 9. Get audited.
How to get approved for a small business loan?
Considering a small business loan, when thinking about whether you can afford one or not, is a legitimate concern. So, what steps should you take to ensure you attain this loan?
Pull out your credit report. You will require your credit report, so start by pulling it out, preferably before you start searching for a small business loan.
Know your credit score. Next, you should find out your credit score. You can do this by obtaining a copy of your credit report, which you can request online.
Know your financial history. A lender wants to know that you will be able to pay back the loan, so gather information on previous loans or credit accounts you have.
Know your time in business. A lender will want to know how long you’ve been in business, and he or she will want to see how long you’ve been operating your business.
Be prepared with documents. A lender will want to verify your identity, so be ready to provide documentation.
With so many different lenders and different types of loans, it can be confusing to figure out which type of loan is best for your small business. How do you choose the right loan? In this blog post, we’ll discuss the different types of small business loans and lenders. Then we’ll discuss what kind of business loans are best for your small business.