Business opportunities don’t always come when you are ready for them. Chances are, when a great deal appears, you won’t have money to cough up just like that. This is what business loans are for – not missing that perfect opportunity. However, due to banks’ tight lending standards, getting a loan often turns out difficult for small businesses. With this in mind, we’ve broken down getting a business loan into steps.
1. Figure out why do you need it?
This isn’t about self-questioning – if you’ve decided to get a loan, we hope that you’ve considered the reasons. However, you are going to need to tell something to your lenders – they won’t give you money just like that. Usually, the reasons behind getting a loan are: to start your business, to grow your business, to manage everyday expenses and just to be safe. Make sure that your lender knows about your reason(s).
2. Choose a loan types
Lending money for business purposes is probably somewhat more complicated than you might’ve thought. Depending on your reason for lending money, there are various loan types you can get. Unfortunately for startups, lenders require cash flow to make sure that a company is able to repay the loan. What this means is that startups have to rely on business credit cards, crowdfunding, borrowing from friends and family, making personal loans or microloans.
If you are getting a loan for managing everyday expenses, here’s what you’ll want:
• Business line of credit – This allows you to borrow and repay only the money you need.
• Invoice factoring – Basically upfront cash for unpaid invoices
• Working capital loans – For regular expenses
If you are aiming at growing your business, there is a loan type that might help you:
• Business expansion loan – It provides a sum of money and requires fixed payments
3. Choose What Lender to Go with
Small-business loans can be obtained from a number of locations, such as banks, nonprofit micro-lenders and online lenders. Choosing which one to go with is much like browsing for something expensive, say, a car. Now just as you wouldn’t outright buy the first car that you stumble upon, you shouldn’t go with just any lender. For example, if you need a loan quickly, banks might not be the best choice. Instead, you can choose from NSW Mortgage Corp selection of services, seeing as how they will have the money available to you faster than any bank could.
This is not to say, however, that banks are useless. They are much more stable and, if you can provide collateral, have good credit and aren’t in a hurry for that loan, you should definitely go with them. Small Business Administration (SBA) loans range from $5,000 to $5 million, but average at around $300,000.
On the other hand, if you lack collateral, aren’t experienced and need funding somewhat quickly, online lenders are the way to go. They provide small-business loans from $500 to $500,000.
Now, when you cannot get a traditional loan due to the size of your company (or lack thereof), micro-lending nonprofit organizations are your only option. They offer short-term loans of less than $35,000.
In essence, banks are the safest and best bet. However, if you aren’t eligible or do not meet recommended conditions for a bank loan, online lenders might be of use. If you are a young startup, well, the only remaining option is micro-lenders.