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Guide to Successfully Obtaining a Small Business Loan When You Require Extra Cash

A business loan can be advanced to pay for the stock, pay the creditors, as salary to the workers, to expand or pay for operational costs. There are multiple kinds of small-scale business loans. Your need will define the type of loan and your creditworthiness of the organization’s credit rating by defining the lending form you will go to.

Small scale enterprises such as sole proprietorship can advance financing from their family members or exploit the peer-to-peer loans. The medium-scale business may not be so lucky to explore their ways. With these factors in mind, this article seeks to establish a guide on how to obtain financing for small businesses.

However, before embarking on it, we must learn the various types of credits available for small businesses.

Types of small business loans

Accounts receivable loans: these are loans that are secured by the company’s accounts receivable (AR). The business is able to get immediate financing – hence underlining how convenient these forms of credit are. Moreover, the rates of interest on these loans are variable from one financing to another and from one; lender to another. As the debtors settle their accounts, the funds are transferred to the lender as payment. Consequently, it is a short-term loan that targets businesses.

The small business line of credit: This type of financing is set up by the firm with a lender for long term financing. Usually, a cap is placed on the maximum amount one can borrow. The loan account allows the business to withdraw cash whenever it so wishes as long as the amount does not exceed a specific amount.

The loan also attracts interest like the rest. However, the interest is payable every month. The loan term can be renewed annually if it doesn’t get renewed, the principal amount and the interest is payable in full. However, if restored then the principal is amortized over the loan term. It is worth noting that the interest-only starts to be charged after the funds in the account are used. This account is ideal for managing business cash flow and other expenses.

Small business term loans:

These loans are ideal for expansion, capital requirements, and operational expenditures or for one-time large transaction. These loans are typically the same as the line of credit financing. However, the main differences occur where this kind offers better terms with flexible repayment terms. Also, these loans can either be secured or unsecured. The rates of interest also vary depending on the lender and credit rating. The rates are further fixed or variable depending on the terms and the lender.

Working capital loans:

These are short-term financing products advanced to small or medium scale businesses to finance their daily operations, manage revenue fluctuations and take care of general business expenses that may arise. The credit can be secured or unsecured.

However, for businesses with a lower credit rating will have to give security for the loan. Check here some nice deals

Small business credit cards:

This form of financing works the same way as individual credit cards. The owner of the business becomes the co-signer on the credit card. Depending on the creditworthiness of the owner and the business itself, credit card loan amounts may be high or low. But, as a general practice, the card has a maximum spending limit.

Equipment loans: an equipment loan is a short time business financing meant to assist in purchasing business equipment, including furniture, computers, business vehicles, etc. All the business has to do is deposit a 20% deposit of the cost of the item. The principal is amortized over the period of the loan term. Hence, this loan is also called the equipment lease. The interest on the loan is, however, repayable on a monthly basis. These loans are typically secured by the equipment purchased.

Small business loan guide

Shop for the right lender

Technology has revolutionized this industry such that it has increasingly become easy to locate a lender who is suitable to advance your loans with favorable rates you are looking for. There are the direct online lenders who will offer you the loan more readily and faster. On the other hand, banks and credit unions are slow and will consider your loan after a few weeks of deliberation after which they bring feedback after 48 minutes. Time is of the essence; therefore, if you received the money in the short term in banks, then they would have been the best lenders since they charge lower rates because of their collateral. Choose a lender who guarantees lower rates with superior loan terms.

Organize your financial requirements

Most lenders give out loans based on when you can repay the money and if you have the necessary documents to support your loan bid. Usually, recent bank statements, tax return statements, proof of existence, residence and line of duty (certificates of registration and license). So, ensure these documents are availed during the evaluation. Some additional factors considered include debt-to-credit ratio, income statements, cash inflow, and cash outflow statements, balance sheets, accounts payable, receivables, etc.

Gather sufficient information on the application

Usually, individual loans and institutional loans differ in almost everything. This is the reason why one needs to look up the requirements for a firm to receive financing.

The following are some of the requirements for small business loans:

  • -name of the business
  • -tax ID
  • -financial statements, past and projected
  • -certificates of registration, incorporation, association, etc if there are any
  • -copies of the insurance policy cover
  • -financial statements of principal shareholder (s)
  • -business plan
  • -The amount being applied for

The bottom line

The loan security, terms of the loan and the online profile of the business are some of the critical factors to consider before applying for a business loan. Also, since as the owner, you share loan liability with the industry, your credit history should be wiped clean of any misappropriations. In other cases, lenders use the owner’s credit rating to approve a loan for the business. If you need extra cash for your business, there are plenty of choices and opportunities with credit facilitators.