Whether you are launching a small business startup, preparing for growth and expansion, launching a new product or more, you understandably need access to extra capital for your business venture. It is common for small businesses to need an infusion of extra capital from time to time, and a small business loan may the ideal solution for you.
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Understanding Small Business Loans
Small business financing has been available in various forms for centuries. New and small businesses generally do not have access to the capital solutions and large investors that large companies have, and they require unique financing solutions. Small business loans are specifically designed to help these businesses get access to the funds they need, and the funds can help make ends meet in a slow time, fund expansion ideas and more. After learning more about what a business loan is, you will be able to determine if this is the right lending option for your business.
Limits and Amounts
You likely have a specific loan amount in mind, and you may be wondering if a business loan is well-suited to meet your unique cash needs. Loan amounts for these loans can vary based on a wide range of factors. You can reasonably expect to receive a loan of several thousand to tens of thousands of dollars. Some even qualify for a loan amount of $100,000 or much more.
What Types of Business Loans Are There?
There are several types of business loans available to choose from. The primary options include secured and unsecured loans. Secured loans use collateral, and they generally have a lower interest rate and a higher loan amount. Collateral used may include equipment and machines, inventory and other assets. Unsecured loans, on the other hand, may have a higher interest rate and a lower loan amount.
How to Apply for Small Business Financing
Applying for a small business loan can seem daunting. However, you can easily walk through the steps to obtain the funds you need. These are the most common steps most business owners take when applying for a loan.
- Create or update your business loan. This is imperative for two reasons. First, it defines your need for cash and helps you to determine the right loan amount to apply for. Second, most lenders will ask for it during the loan process.
- Review your budget to ensure that the payment generated from your loan amount will be manageable for your budget.
- Consider your ability to provide collateral as well as your risk associated with losing the collateral if you default on the loan. It is great to obtain a higher loan amount and lower interest rate with a secured loan. However, it is not always the best option for businesses to pursue.
- Search for a lender that offers the loan amount you need in a preferred loan type. Make a list of your top lender options. Read reviews online to determine which one you should move forward with.
- Most business lenders have an online loan application. You can complete this form online to begin the formal loan process. The lender typically will contact you soon after you submit the form to discuss your loan options.
- If you do not qualify for a loan directly through a bank, reach out to the Small Business Administration, or SBA. The SBA can help you to find a lender, and they can back you. By backing you, they increase the likelihood of you getting approved for your business loan.
- After this point, you simply walk through the rest of the lender’s loan process. Soon, the loan will fund, and you will have full access to the funds you need for your business plans.
How Does Repayment Work?
If you have never applied for small business financing, you may not be certain how the repayment process works. With a small business loan, you generally will be responsible for making regular monthly payments to reduce the principal balance over time and to eventually pay off the debt. Some banks and lenders prefer or require that you set up automated payments or that you permit drafts to be taken out of your account. Otherwise, you will be required to make these payments on time each month. You can avoid putting your collateral at risk or falling behind on your debt payments by making an effort to make these payments on time regularly.
FAQs We Know You Have
If you are thinking about applying for small business financing, you understandably want to carefully review the options. You also want to get answers to all your questions to move forward intelligently. Therefore, these are some of the more common questions business owners have about small business loans.
Q. How can the loan proceeds be used?
A. Small business loans can be used for a wide range of purposes. Most lenders do not place limitations on your use of funds. However, they typically need to review your business plan. That is to ensure that you have a viable and legitimate need for a number of funds you are requesting. Other lenders may set limitations regarding how you can use the funds. These limitations are usually based on your business plans.
Q. What are reasonable interest rates that you can expect to receive a small business loan?
A. It is wise to learn more about interest rates before taking on a new debt. Interest rates can impact your overall cost of financing, your monthly payment and overall overhead and more. Interest rates for business loans are currently around four to six percent. However, this varies substantially based on market fluctuations, credit scores, business financials and more.
Q. What are lending options if your small business loan amount falls below your financial needs?
A. Some business owners discover that they cannot qualify for the full amount of funding they need through a business loan. You have a few other financing options to consider, such as taking on a business partner, finding an equity investor or using crowdfunding.
Q. What happens if you default on a small business loan?
A. Some small businesses do default on their debt from time to time. Therefore, it is wise to learn more about what happens in this scenario. If you default on a secured loan, the lender typically will seize the asset used as collateral. With an unsecured loan, you may be sued for damages. Otherwise, your business may become personally liable for the amount owed in some cases.
Q. What are loan terms available for a small business loan?
A. Loan terms for business loans vary by lender and loan program. It is common to find loan terms that range from ten to 20 years. Still, there is fluctuation outside of this range.
Financial needs are common with small business loans, and applying for a new loan makes sound financial sense to many. If you have decided that borrowing money is the right move to make, simply walk through these steps to begin the loan process. Soon, you will gain access to the funds your small business needs.