Guide to Small Business Loans
Starting a small business is the dream of many, but in order to do so sufficient capital must be secured to cover the many costs associated with start-up. The most frequently used option for obtaining capital used by many entrepreneurs is a small business loan. Before you apply for a small business loan; however, it is important to make sure that you understand what is required.
Requirements for a Small Business Loan
As is the case with any loan, when you apply for a small business loan, lenders want to be sure that the level of risk they take on is as small as possible. This means that applicants for small business loans will need to demonstrate that they are credit worthy. Your ability to present your business as a responsible, credit worthy entity will greatly improve your chances of being approved for a small business loan.
When applying for a small business loan you should be prepared to provide a number of documents to the lender. These documents include tax returns, personal financial statements, a business plan and monthly cash flow projections. You should also make sure that you have a detailed plan that will demonstrate how you plan to use the proceeds of the loan.
The exact approval guidelines for small business loans tend to vary from one bank to another and can be applied on a case by case basis.
Options for Financing a Small Business Loan
When looking for small business loans, you should also know that you have different options available to you. One of those options is to apply for a loan with a local bank or a bank with whom you already have an established relationship. This can be a good option if you have a good credit rating and can provide a well thought out business plan.
There are also other options which you may wish to consider as well. Private financing is one of those options. Private small business loans are typically more expensive than loans that are obtained through banks because the interest rates are higher, but they are advantageous in some situations. The most common situation in which private small business loans are used is when the entrepreneur’s personal credit rating does not allow them to qualify for a loan through traditional methods.
In addition to these loans, there are other options for financing a small business as well. One option would be to obtain a line of credit. This option is typically used for paying for the day to day operating expenses, with the maximum amount of the credit line determined by the business’ accounts receivable.
Leasing is another financing option that can be used in many situations. This is a good option for procuring equipment and other forms of fixed assets. Rather than buying the assets outright in the beginning, the items are instead leased and then purchased at the end of the lease period.
Business credit cards are also commonly used to pay for business expenses as well. These are a good option for paying for regular or recurring expenses. Business credit cards are usually only provided with the personal guarantee of the business owner.
Other options are SBA small business loans. There is a variety of SBA loans which are either partially or fully guaranteed by the Small Business Administration. Business owners apply for the loans through a lender, but must be approved by the SBA prior to the loan being approved.
Time frame for Securing a Small Business Loan
The amount of time that it takes to secure a small business loan depends upon the method used by the business owner. Applying for a non-SBA loan through a lender can be a somewhat faster process, but it can still take a few weeks, depending on how long it takes the lender to review the necessary documentation. Loans that are guaranteed by the SBA will take longer because the loans must be approved by the SBA in addition to the lender.
