I Need a Business Loan, How Do I Find the Best One for My Type of Business?
You have an idea, and you know that if you could just get it started, you’d be heading up a successful business in no time.
One problem – you’re lacking the funds to see your dream become a reality.
This idea is too good to just let go, however, the next thought that probably crosses your mind is, “I need a business loan.”
And here, there’s good news – a variety of loans for business purposes exist to help people just like you become business owners.
But what kind of loan do you need for your business? Keep reading to learn about the different kinds of business loans and which one will work best to build your budding empire!
How Does a Business Loan Work?
All business loans work in roughly the same way – you receive the funds you need to either build your new business or grow your existing one and in return, you pay a certain amount of interest back with the borrowed amount. Some have additional fees that need to be repaid as part of the agreement.
But within that basic framework, there are different types of loans that work best for different types of businesses and your goal with those funds.
How Will the Loan Be Used?
Do you need a large start-up loan in a lump sum to purchase new equipment and build your business? Or would it work better to have a revolving line of credit that you can borrow from again and again?
Where Are You Getting Your Loan From?
For a long time, walking into a traditional bank and requesting help was your only option.
However, thanks to the rise of online lenders, you can now have companies competing for the opportunity to finance your business. These companies serve as a single platform to apply from and then match your application with companies offering the best loans for your needs.
Visit this website to learn more.
What Can You Qualify For
If you’re a younger entrepreneur without a proven history, you might not qualify for the same loans someone with a solid credit history or business record is offered.
While there are a variety of loan styles available, your credit history and business idea will play a large part in the ones you’re actually able to receive.
The following criteria will be dependent on your qualifications.
- What fees you are charged
- How much you can receive
- The amount of time you have to repay
- Your monthly payment amount
- The interest rate charged
- If any collateral is required
I Need a Business Loan – What Is Required?
Before you start worrying about what you’re qualified for, know that even people with bad or no credit can receive loans for business funds. You just need to have a better case.
Qualifying for a business loan requires the same criteria as any other loan – your credit report and income verification. However, most loans you take out are based on your current income. A business loan is taken out based on the projected income of the new business.
To this end, you need to make sure you have a solid business plan. Study the market you’re entering, your competition, profit margins, and expenses and combine them with the plans for your new venture to create a plan you can show potential investors.
Business Loans for People With Good Credit
If you’ve got good credit, you’ve got a better chance of getting a business loan with favorable terms and higher limits.
The best business loan you can receive is an SBA, or Small Business Association, loan. Because SBA loans are backed by the US Small Business Administration, they have some of the best interest rates available.
You might also qualify for a term loan, which is a large lump sum that is repaid over a series of years. The bonus of bank-backed term loans is that they generally have lower interest rates as well.
If you require a smaller startup loan or don’t qualify for a larger one, you can look into one of the many banks or online companies that offer microloans. These are term loans at smaller amounts that have a slightly larger interest rate.
If you’d prefer a loan that isn’t one large lump sum, you could instead open a business line of credit or business credit card. The plus side of these loans is that they are revolving, meaning they can be used again and again and the amount you pay each month is in direct proportion to how much you have borrowed.
The downside to a line of credit is the interest rate – you will pay exponentially more to have an open line to continued funds.
Business Loans for People With Bad Credit
If you have bad or mediocre credit, you can still receive a loan, but you’ll pay more. Interest rates are higher and you may be charged additional fees to receive funds.
The loans that are easiest to qualify for in these types of situations are where collateral is available in case the debt isn’t repaid. For instance, equipment loans where the equipment stands as collateral against the debt, or invoice financing where you can borrow a certain amount of money based on the unpaid invoices your business holds.
If you don’t have collateral, merchant cash advances allow you to borrow cash upfront with agreed-upon repayment terms, but the APRs are generally much higher than a tradition loan.
If you have to take out a loan with terms that aren’t the greatest, remember – you can always refinance once your credit history has improved and you qualify for better terms.
Getting Your Business Loan
If you’re sitting there thinking, “Man, I need a business loan now,” don’t despair. Get a business plan together and take it to banks and online companies alike to get the funding you need to see your dream come to life!
Need more solid business advice to grow your little empire? Check out the rest of the articles on this site!