Most of the small businesses normally depend on small business loans when it comes to growth and other initiatives. At present, based on the type of business, credit history, collateral and age of business and some other factors, there are more small business funding options available.
The banks are still the most reliable and viable traditional funding source for those small businesses that can meet the strict lending requirements. However, there are some additional funding sources for those small businesses that can’t meet the bank’s strict lending requirements. Some of the funding programs could be a best fit for your small business; however, some can help you to fix financial problems encountered by many small businesses.
Reasons to Get Small Business Loans
Settle Down Credit Card Debt
Settling down your credit card debt can help you create financial discipline that all credit rating agencies like to see. It additionally gets you away from paying the minimum and forces you to pay down the balance to free up your cash flow in the end.
The emerging technology is an essential part of not only our personal lives, but our businesses as well. Small businesses can gain a competitive edge, whether it’s investing in getting latest medical tools or getting latest equipment to boost your business productivity.
Paying Bank Fees
There are many small business that are experiencing irregular cash flow and for that reason they normally can encounter some sort of intermittent overdrafts at the banks. If you are exhausted with marking down the bank fees, you need to consider working capital infusion in order to help manage your business cash flow.
Almost every seasonal small business owner can experience the seasonal ups and downs. Additionally it occurs in almost every industry; however the down cycles can be specifically arduous for a small business. Strengthening your accounts to prepare in advance for these down cycles can relieve a huge amount of stress.
What Lenders Look For in Borrowers?
Time in Business
Lenders need to know that you are an established business. Startups will always have the toughest time in getting funding. Even if an applicant has a perfect credit rating, he can find it difficult to get funding for a new small business. Generally, most lenders want to know that you have been in business for at least a year.
Business and Personal Credit Score
Debt that is frequently and timely paid is essential. Lenders need to know that you are a responsible business owner, so representing a strong business and personal credit score is important. When you have had issue maintaining these obligations in the past but have been current for the past one to two years, there’s no need to fear.
Business Annual Revenue
There are many alternative lenders need to see a minimum annual sales of $100,000. The loans will always be capped at a percentage of sales as it demonstrates your business’ potential to pay the lender back. There are also some lenders that would require some financial statements or probably a year-end tax return statements. The great aspect about the alternative lending is that they require more than last 3-4 years of business bank statements, however the traditional lenders can ask for more than that.
Average Bank Balance
Do you often have negative balances? In that case, this can be a consideration. On the other hand, it can be your major reason for getting a small business loan. Many small businesses have operated on what is generally known as a float. This is when your traditional bank will allow your business to hold a negative balance for a short time. It is regularly accompanied by extraordinarily excessive fees, so in case your business falls into this class and you are trying to remove these excessive fees and set up a better credit score for your business, make certain that you let potential lenders know.
Owner Credit Rating
This factor is important in getting approved for small business loan; however not as imperative as some might consider. The business owner’s credit score is normally the last thing that a lender will evaluate. If a small business owner has a perfect business but less than 500 credit score, most lenders will likely walk away. However there are many small business owners who have ruined their personal credit score to keep their business alive.