Financing plays an important role in helping your business flourish and stays ahead of your competitors in today’s world. As the business’s need for financing is growing, the opportunities to get the loan are also increasing, and you can even apply for the loans online.
Small businesses are vital in providing you a better future, and you can also advance them into larger premises once you have settled its grounds. But is getting a loan worth it? How can it help your small businesses thrive? How would you get it in the best possible way? This article is going to answer all these questions in detail.
What are small businesses?
These are privately owned partnerships, corporations, and even sole companies that contain fewer employees and generally have a much lesser revenue than a regular/normal sized business corporation. The employees can range from fifteen to as many as fifty employees.
These are regarded as small businesses on the basis of their revenues, assets, sales, shipments, net profits, the total number of employees working, and many other important factors.
Small businesses may include small retail stores/operations like grocery stores, bakeries, hairdressers, guesthouses, photographers, restaurants, small scale manufacturing, and many others.
Some high professionals operate small businesses like lawyers, medical doctors, dentists, etc.
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The usefulness of small businesses
Small businesses are very important because they provide an open opportunity for entrepreneurs and others by creating meaningful jobs so that they may have greater job satisfaction in a comfortable position compared to larger companies.
Small businesses are very much important and beneficial to the economy of the state. For example, about 27 million small businesses in the US are generating 50% of the GDP. In addition, they are also actively contributing to the growth in various areas of socio-economic and economic development. One of the ways in which they benefit the nations is by creating jobs and ending unemployment.
What are small business loans?
Small business loans are the loans that you get from the market for your small businesses. When you take such kind of loan, you will get a huge amount of money that you will have to pay back the borrowed money within a specific timeline. The money also includes a fixed interest rate with some regular terms for the repayment. The repayment time varies from loan to loan and lender to lender.
How do you get approved for small business loans?
Reliability is the most important factor that helps you get your desired amount from the loan lender. If you need a small business loan, you must have to have a profitable business or personal credit score to gain the trust of the lender. Adding to it, you must also have a clear history of strong cash flow and a debt-to-income ratio.
What are the different types of small business loans that you can get?
There is a huge number of loan lenders that you will get in the market, but in broader terms, they may be divided into two types of loan lender or loans that you will find. These are small business loans that you will get manually, and others you can get online without any trouble.
Online loans for small business
Fundbox: It is a specialized business loan lender that offers you some financial products for your small businesses. It was initially founded in 2013, with the initial provision of invoice financing products, known as Fundbox Credits. Later in 2017, it introduced a credit product line, and now it stands out prominent because of super-fast and easy to qualify for its useful products.
BlueVine: It is an online lender that offers you, being a small business owner, various loan options that you can go for in order to fulfill your short-term business financial needs. It is currently not working as it ended recently on 8th August 2020, but it offered Paycheck Protection Program loans that assisted all the small businesspersons during the pandemic of Covid-19.
Kabbage: It is a technology company that connects small businesses with various cash-flow solutions, including access to capital and payment processes. It provides effective tools that simplify all the day-to-day cash-flow needs experienced by every small business owner. It allows you to accept payments efficiently, access the flexible LOCs, and understand their cash-flow.
OnDeck: Originally founded in the year 2006, OnDeck is one of the most leading platforms that is working to provide you with fully automated loan services that are quite beneficial for your small businesses. It mainly offers you term loans and business LOC. It allows you to go for the online application process and prevents you from being involved in any physical interview in person.
LoanBuilder: It is a loan lending service that offers you an easy, quick, and transparent way to run a business. It is offered by PayPal and offers you a short-term business loan. These loans are an interest-free type of loans in which you have to pay back the borrowed amount in a predetermined and a fixed fee, including the amount that they had borrowed previously.
SBG Funding: This is an online funding site that has partnered with business.com and asks you to go through three simple steps to follow to get to the application form that is needed to be filled to get the capital for your small business.
Noble Funding: This is another most prominent site that allows you to fulfill your company’s financial needs by simply applying for a loan through it. The amount paid to you greatly depends upon your own financial needs.
Rapid Finance: This is the most leading and trusted site that provides you with many options to get the loans and guide you through the whole process. Merchant cash advice and the small business loan are two of its best options that it provides you to get the capital and make your business succeed.
Other loans
Besides these types of online loans, there are some other types of loans also which include.
SBA loans:This type of loan comes from an entity that has partnered with government agencies. To understand deeply, firstly, you have to secure a loan from the bank, and then SBA guarantees the repayment of 85% of the remaining payment of the loan back to the bank that you have taken from it. SBA loans guarantee you the educational benefits and professional counseling for you when you are going to start small businesses.
Invoice Financing: It is efficient in B2B businesses whose financial needs are very specific. What they do is, they send the invoices to their clients and wait for the payment, where meanwhile their own bills and required payments are mounting up that need to be clarified. The shortage of funds occurs when these businesses can’t get their cycle of cash flow to sync up efficiently, and their payment remains due.
Equipment Financing: In this type of loan, the lender extends you the funds that are needed to purchase the equipment for your businesses.
Equipment financing provides you quick access to money and a loan that is perfectly “self-secured.” The process requires only simple paperwork and few other requirements that are perfectly easy to fulfill.
Traditional Term Loan: This type of loan is best for those who are looking for a large sum of money for their businesses. The bank provides you with a huge sum of money, and you have to repay the amount within the set schedule.
The rates these banks offer for loans are above 6%, and some even go below 3%. Sometimes banks are reluctant to extend the payback timeline for small businesses, so to get the loan from the bank, you need to have exceptional business and personal credits. A strong annual revenue is also needed to gain trust.
Business lines of credit: In this type of loan, a borrower is given a huge sum of money that can be restored as the borrower repays the loan in the given time. Small business owners can continue to draw on the LOCs whenever they feel the rise in their financial needs.
Interest rates vary greatly, depending upon the borrower himself, but they are starting from as low as 7%.
Business credit cards: If you are using a credit card for your everyday needs, such as purchasing supplies, this can be greatly helpful for you in building up an attractive credit score, and it also rewards you with insurance policies and perks. Credit cards are effective in covering up your costs without you needing the major kinds of loans.
USDA Loans: This type of loan is working for just the US citizens, and if you want to start up a new rural business, then you might go for choosing a USDA loan. This loan guarantees to provide you with the amount needed to fulfill the financial requirements of your business.
To get the loan, you must have with you all the sufficient documents to gain the lender’s trust. The amount of loan has no specific limits set by the USDA; however, it greatly depends on your household’s income and debt-to-income ratios. The acceptable debt-to-income ratio is 41%.
Term loans: It is the type of loan which you have to pay back over a period of time which is set. For example, you have to pay back the loan in thirty years or twenty months. They take a little interest, and it’s easy for you to pay in small amounts over a long period of time.
Documentation
You need to keep in your mind what document you might need while applying for the process. You must have to compile all of them to not find any trouble getting qualified for the loans. Documentation relating to your financial and personal records like bank statements and business financial reports, including your yearly earnings, loss and profit statements, etc.
Adding to it, you would also want your credit reports. However, SBA loans are provided to those who have their companies operating in the United States.
Credit Profiles
As far as the credit profiles are concerned, it would help if you had a strong portfolio for your credit score in order to make the bank trust. If your credit score is better than average, then there are increased chances for you to get a good amount of loan depending upon your company’s financial needs.
Timeline
Timeline matters a lot. You must be aware of the timelines provided by the loan lender to you so that you can pay back all the amount you have borrowed for yourself. The timeline may vary from as short as two months to as long as five years, depending upon the type of loan you go for.
Loan amounts
Loan amounts are obviously a prominent factor in determining the type of loan you should opt for. If you want a great amount of money, you should go for a specific type of loan that will provide you with a larger sum of money, and if you do not need this much amount, you are preferred to opt for a type of loan that provides you a lesser amount. The total amount may vary between $500 to almost $5 million.
Time of funding
Time of funding is also an important factor/term to consider while opting for a specific type of loan. If you need an amount on an urgent basis, then you might opt for loans that do not let you wait for longer than 48 hours, like short-term online loans and term loans.
But if you can wait for up to 5 days, then opt for long-term loans and others that provide you with an amount within 5 days.
Our Final Words
Small businesses are really important in modern society where everything has been made so complicated. Especially when it comes to earning money, nothing seems to be ready on the plate; instead, you have to struggle a lot. In such conditions, loans can make you a
perfect partner that would let your businesses flourish and get out of any financial struggle that may ruin your business status and your hard work.
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