A GUIDE TO CHOOSING THE RIGHT SMALL BUSINESS LOAN
Choosing the right small business loan begins with your specific needs. It also depends upon your character, and your location, and the history of you and your company. You may not understand why the lender would need so much information. Banks require it for one simple reason. Security.
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They must be secure in the knowledge that they will get their money paid back, with interest. The Chamber of Commerce states that half of all small businesses will fail within their first five years. For the bank, this means that if you are looking for a first-time loan that you are a considerable risk for them.
Before you begin the application process you should have a solid understanding of the several types of loans for which you can apply. Each type is designed for specific people and certain circumstances. Read through them carefully and when you are ready to talk to a lender you will be educated upon the type that would best fit your needs.
- Term Loan-This is perhaps the most common type of loan for your small business. It is a lump sum of money loaned to you, with a signed agreement that states that you will pay the full amount back over a set period of time, with interest tacked on. Term loans get you the funds that you need fast if you qualify. These loans are best suited for businesses that are already established and that have a good history. They are also perfect for established companies that are trying to expand. The downfalls that you may run into with this type is that they may require some type of collateral, and the interest rates can be fairly high with some institutions.
- SBA Loan-The Small Business Administration backs this type of loan that you can get from banks and online lenders. Repayment can be set up for longer terms, depending upon what the loan is for. These types of small business loans are great for companies that have a strong credit history, or that are established and want to expand. The downside to the SBA loan is that they can be hard to qualify for, and they can take a considerable amount of time to get.
- Line of Credit-This may not seem like a loan to you, but it is a viable option if you are only needing a small amount for a brief time. It is also great for seasonal companies that are not open for business all year long. You get a set amount, based on your application, that you can borrow up to. When you need a draw from your line of credit you can simply have it transferred to your account. You will then be required to pay that amount back, along with interest. You will only be responsible to make payments on the specific amount that you took out. Unfortunately, lines of credit are hard to get unless you have a strong revenue history.
These are the three most common types of small business loans that you have available. There are other types that you can apply for as well, such as equipment loans, but this article discusses the basic ways that you can get funds. If you do not qualify for any of these, you can apply for various types of personal loans.
Every loan has set qualifications that you must reach. Different lenders will offer you different contracts at different interest rates. Check around and find the best fit for your needs. Gather all your documentation that you know you will need and go for it.
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