Understanding Small Business Loan Terms Before Applying For A Loan

If you are a small business owner and want to take your small businesses out of any financial trouble or are planning to upgrade your small businesses to larger premises, then to opt for small business loans might be a great option.

However, if you have already planned to go for small business loans so that your businesses may get out of any financial trouble, then there are some most important small business loan terms that you might be aware of before putting your hands into such things.

“Loan terms” means the conditions and terms that are involved in the process when you plan to borrow some money from any loan lender. This may include the period of loan repayment, the rate of interest, the fees associated with the loan, and any other special conditions that may apply to the process.

Below are some most important loan lenders that you might consider opting for when you need loans for your small businesses, but they also imply some terms related to the loan borrowing processes you must be aware of.

SBA Loan

They have partnered with government agencies to provide you with ease in getting loans from the banks. All you have to do is that you have to secure the 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 are quite effective because it guarantees you the educational benefits and professional counseling for you when you are going to start small businesses.

Important Loan Terms

With all such benefits, these SBA loans also come with some predetermined loan terms that you must have to follow to be eligible for getting the loan. These loan terms include.

●      Documentation related to SBA loans

There are certain documentation that you need to keep in mind. The requirements for such loans greatly varies from one lender to another. But when you opt for SBA loans, you would generally require 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 you and SBA loan credentials both. If your credit score is better than average, then there are increased chances for you to get the amount between $500 and $5 million depending upon your company’s financial needs.

●      Timeline

Because both the lending institution and the SBA are responsible for approving the SBA loan, the timeline of funding can be easily exceeded to 2 months. Make sure you submit all required documents with your application to prevent additional delays.

Short-Term Online Loan

Short term online loans include certain loan lenders that let you borrow the loan with huge interest that you can pay back in a short period. These short term business loans are quite effective when you hit an emergency, and you don’t prefer to go for long term loans that you pay back in a longer time.

These short-term online loans include merchant cash advances, lines of credit, payday loans, online or installment plans, invoice financing etc.

The advantage of these short-term business loans is that they come to provide you benefit at the time of your need, and you have to pay it back in a short interval of a maximum 1 year.

Moreover, these are less risky because of their loan processing in a much shorter time. The borrower is able to get the funds more quickly. In addition, they are much easier to acquire from small business owners as compares to long term business loans.

Important loan terms

Short-term loans also come with some terms that you have to follow in order to get it more quickly.

Validity

These types of loans are valid for 3-24 months, meaning that you have to pay back the amount within this decided period of time. The duration may be short but the benefits are great.

Loan amounts

The amount of loans that you can get from these short-term loans ranges from a minimum of $10,000 to a maximum of $35,000.

Time of funding

As you already know, the short-term business loans are easier to get and are provided to you within a short time interval. The funding interval is about 24-48 hours, that means within a day or two. This serves to be a great advantage and allows you to fulfill your company’s financial needs quickly.

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.

For this type of loan, you must have to have all of your documents relating to tax records, your credit card score, and proof of your income or earnings. Sometimes you have to provide them with a specific down payment. 

Your credit score is the important thing that is considered while approving you for this type of load. The greater the credit score, the greater are the chances for you to get approved to have the term loan.

Important loan terms

Payback time

The timeline in which you have to pay the amount back is one week to 2 months and can be exceeded depending upon your borrowed money.

Amount borrowed

The total amount that you can borrow through this type of loan varies between $2,000 and $50,000. This is a huge sum for your small businesses if you have a robust and mindful strategy to make it flourish and succeed in the right direction.

Time to funding

The total time you need to wait to get the amount you have applied to borrow for is about 48 hours. This is so quick that you would not have to wait for long when you go for such types of loans.

Invoice Financing

This type of financing 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.

In such a case, rather than going for a loan, they prefer to fill the gap through invoice financing. They sell their invoice to the lender, who will front the majority of the due amount of the invoice. All of the remaining amounts get on hold until the invoice is paid in full amount.

Important loan terms

Validity

The timeline of Payback that you get by going for this type of loan is about 1+ years in the form of a contract.

Total amount

The amount you get through this type of loan is between $100,000 to almost $2,000,000.

Time to funding

After applying for this type of loan, you have to wait just for five days, and the payment is in your hands. This is not as good a short time as compared to other short-term loans, but even then, it’s not badly long as well.

Equipment Financing

When you obtain any machinery, vehicle, or any other equipment on a rental or lease basis, the process is known as equipment financing. The usefulness of this type of financing is that it prevents you from investing capital in the equipment and allows your business to flourish most effectively.

Equipment financing provides you quick access to money and a loan that is perfectly “self-secured.” The process requires only simple paperwork and a few other requirements that are perfectly easy to fulfill.

If you ever default on paying back the loan, the lender has the right to seize your equipment so that he may be able to repay the debt. Further, the interest rates are a bit higher in this type of loan, but sometimes that can be as low as 8%, depending upon your financial needs.

Important loan terms

Validity

The duration you get to pay back the whole lump sum is between 2-10 years. This is quite a large time that relaxes you much in returning back all the amount.

Total amount

The amount you get after applying for this type of loan is $100,000 to $2,000,000.

Time to funding

The total time that you have to wait after applying for this type of loan is as long as only five days.

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.

Traditional and local banks have remained the primary source that lends money to most of the businesses. With the advancements of technologies, online loan lenders have replaced these traditional loan lending options, but these traditional term loans are still one of the most affordable options.

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.

Important Loan Terms

Validity

The amount that you borrow through this type of loan is payable back in the long timeline of five years. This is quite a long time for you to feel at ease with your business experience, and you can easily pay back all the money.

Total Amount

The total amount varies, depending upon your credit score. The rates these banks offer for loans are above 6%, and some even go below 3%.

Time to funding

You have to wait for up to five days after applying for this type of loan.

Types of loans	Payback time	Amount	Time to funding
SBA loans	2 months and can be exceeded	$500 – $5 million	48 hours
Short-Term Online Loan	3-24 months	$10,000 to maximum of $35,000.	12-24 hours
Term loans	One week to 2 months or slightly longer.	Between $2,000 and $50,000. Can be exceeded to almost $5 million.	Up to 48 hours
Invoice financing	1+ year	Between $100,000 to almost $2,000,000.	As long as only five days
Equipment Financing	2-10 years	$100,000 to $2,000,000.	As long as only 5 days
Traditional Term Loan	Five years		Up to five days

Conclusion

All of the above-mentioned loan terms are must to keep in mind before going to apply for any type of loan. These terms will enable you to decide for better and choose from the best options that you should go for to fulfill your company’s financial needs.