Do you have a small business and are in need of a loan? This process can be complex and confusing. However, it doesn’t have to be. Acquiring the right small business loan often depends on your business and your needs. The rest is just organization and application.
Let’s break down the major topics that go into getting a small business loan.
Why Get a Small Business Loan
Small business loans are a type of financing that you can get from different lenders, for different purposes. Starting and operating a small business requires a lot of money. A loan is a great way to help keep your business afloat and financed. However, even with the help of loans, situations can be unpredictable. If you find that your small business isn’t getting enough funding to operate, you may want to contact a bankruptcy lawyer. If you’re in PA you should call a Bryn Mawr bankruptcy attorney.
Types of Small Business Loans
With so many different types of businesses, there’s a wide variety of loans that can be granted to your small business. When deciding which one is right for your business, focus on the purpose you need a loan and the type of business you’re running. Below are just some of the many small business loans you can apply for.
SBA loans are given by the U.S. Small Business Administration. This federal agency is designed to help you find the funding your small business needs, especially when you can’t get the help elsewhere. This means that the SBA isn’t your lender. Instead, they guarantee a portion of your loans, which means that if you can’t pay the loan, they will do it for you.
There are three types of SBA loans.
This loan is great for a wide variety of purposes that include funding working capital, expanding your business, and purchasing equipment. Lenders are typically banks, credit unions, and other specialized lenders. 7(a) loans don’t typically require collateral if the amount is less than $25,000. $350,000 to the highest award amount of $5 million will require collateral due to higher risk.
This type of loan is more project-based with a focus on the purchase of long-term, fixed assets. This could include land or machinery. 504 loans typically require more examination for approval and your business must have a net worth above $15 million and an average net income of $5 million or less to even be considered for the loan. Lenders are a combination of banks and Certified Development Companies (CDC).
This loan is most known for the speed of acquiring. If you meet all the requirements, your application will be reviewed within 36 hours or less and you should get your funds within the month. Express Loans can help you finance up to $350,000.
Short Term Loan
Much like SBA Express loans, short term loans are focused on speed. However, these loans are significantly faster in the time it takes to receive your funds. If your application is approved, you could have your money in only 24 hours.
It should be noted that the amount offered with a short term loan is less than other types. Short term loans only go up to $500,000 and you’ll need to pay it off in a shorter amount of time, typically 1-3 years.
If you’re looking for a quick solution to your small business’s financial needs, a short term loan is your best option.
This type of loan will provide you with a single payment of money that you’ll need to pay back in regular payment terms and at fixed interest rates. Term loans typically take around 1-5 years to pay off and are used toward expanding your business operations, purchasing equipment, and hiring staff among other things.
If you’re just starting out, it may be difficult to qualify for many small business loans. However, a startup loan is a great way to help get the funding so you can open. Funds range from $500 to $750,000 and the loan terms can last up to 25 years. While you don’t need to have business experience, you will need a credit score of 680 or higher to qualify.
Startup loans can help you lease office space, purchase equipment, and hire staff.
How to Apply for a Small Business Loan
Acquiring a small business loan isn’t as simple as filling out a piece of paper and sending it in. There are many factors that need to be taken care of in order to apply. Let’s break down each factor so you have a better understanding of how to apply for a small business loan.
Is My Business Eligible?
Lenders look at many things when determining your eligibility. Be sure that not only does your business have good credit but you have good personal credit as well. If your business has high cash flow and income, you’re more likely to get approved.
Apart from a startup loan, your eligibility will hinge on your business history. At least two years of record is essential to acquiring a small business loan. Do you have a lot of debt built up from your business? That will significantly harm your eligibility to receive a loan.
If you have all of these factors in order, you are highly likely to get approved for the small business loan you need.
What Documents Do I Need for a Small Business Loan?
There are seven different documents you’ll need when you start your loan application process. These include:
- Personal Financial Statement
- Borrower Information
- Statement of Personal History
- Personal Tax Returns
- Identification Card
- Business Plan
How Do I Choose a Lender?
The best lenders are those with experience. You’ll want to find a bank with experience in small business loans. This will ensure that you are taken care of through the entire process rather than being unsure of the status of your loan.
Lenders also depend on the type of loan you are applying for. Be sure to research which lenders are attached to your specific loan.
When Will I Receive My Small Business Loan?
Much like the type of lender, the duration it takes to receive your funds depends on the type of loan you applied for. Short term and express loans are ideal if you need funds quickly. Other loans have more paperwork and will typically take longer. Some can take a few months or longer.
Acquiring a small business loan can often feel confusing and overwhelming. However, if you stay organized with your business documents and lender research, the process should be fairly simple to complete. There are many options for loans, lenders, and the time it takes to receive. Whatever the needs of your business are, there’s a small business loan that can work for you.
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