When you want to start a small business, you follow a couple of steps such as first you refine an idea and write a business loan, followed by a thorough assessment of the finances and insurance policies, then after building your team and choosing the right vendor, you are ready to advertise and market your product or services. To execute a business plan effectively, external funding – small business loan – can help you out. As vital it is to follow a string of steps to start a business, it is equally important to go through a couple of mandatory steps while choosing a small business loan for your small business.
Starting from loan options and moving on to the application process, then analyzing the rates and fees of those very loan types and lastly making a decision while keeping the reputation of your potential lenders in mind, a borrower has to go through a series of steps to choose the most appropriate funding for your business. Let us explore each option comprehensively so that you can choose the right funding for your dream.
What are my lender options?
A borrower can either go to a traditional or an alternative lender or can explore the marketplaces. The major difference between the two is that a traditional or an alternative lender offers and approves the loan by itself. On the contrary, if you are consulting a financial advisor, whether via online channels or in person, that advisor will pair you up with the lender and after comparative analysis, you can strike a deal with the lender you think will be best for your business.
Mostly, all of the lenders offer merchant cash advances, business lines of credit, SBA loans, term loans, equipment and invoice financing. Although all the lending resources are offering multiple types of loans some lenders such as banks refrain from funding startups and they consider them a financial threat but don’t be disappointed just yet. Alternative lenders allow every type of small businesses to take funds out of their business loan treasure. However, as compared to banks, alternative lenders have high-interest rate and APR. Still, if you are getting funds to run a smooth business, you will be able to generate enough profit to make all the payments on time. As over the past, there was a significant increase in the number of small businesses, the number of lenders has also increased as well in America. According to recent research and survey, the Small Business Administration has offered more than $20.6 billion by the end of June 2019. The research also states that more than half of the small business loan applicants are approved by the SBA. So, with this magnitude, you can easily find practical, economical and reasonable funding for your business in every corner of the United States of America.
So, what are my potential loan options?
Private, alternative, traditional lenders are offering small business loans of the following types:
- Merchant Cash Advance
A merchant cash advance is best for businesses that generate revenue through future credit card sales. As the borrower is getting a loan in exchange for the future income, so technically, a merchant cash advance does not fall in the category of a business loan. The lender can either ask you to make debits on a daily or weekly basis, or the lender can take a small percentage of incoming credit or debit transactions.
Maximum Cash Advance: $2,500 and $500,000
Cash Advance Term: 3 to 18 months, but these terms are not fixed.
Factor Fee: 1.15 – 1.20
- Business Line of Credit
If you want access to cash, whenever you desire, apply for a business line of credit. If you have a stellar financial standing – credit score, CFS (cash flow statements), and collateral – a line of credit can help you cover any financial shortcoming. From machine repairing to stocking in inventory, a borrower has the liberty to spend the money wherever and whenever. Another plus point of a line of credit is borrower only pays interest on the amount he withdraws.
Maximum Loan Amount: $5,000 to $1 Million
Loan Term: 6 months to 5 years
Interest rate: 7-25%
- Short term and long term loan
This loan is self-explanatory! With this loan, you can cover almost any financial need, so if you are satisfied with loan amount and repayment terms, you must apply away.
Loan Amount: $5,000 – $250,000 (short-term), $5,000 – $500,000 (long-term)
Loan Term: up to 10 years (short-term), up to 35 years (long-term)
Interest Rate: 5.75% and 13%
- Invoice Financing
This funding option allows you to get a loan against the pending invoices. So if your customers need to clear some invoices, now is the time to turn it to cash.
Loan Amount: up to 100%
Loan Term: Until customer clears the invoice.
Interest Rate: 8 – 30%
- Equipment Loan
If your business can use an up-gradation of tools, apply for the equipment financing. Either the lender will give you enough money to purchase the equipment of your choice or the lender will lease the equipment and the borrower will have to make payments according to the schedule.
Loan Amount: As per the value of the equipment
Loan Term: Till the life of the equipment.
Interest Rate: 8 – 30%
Now that you know the loan amount, loan term and interest rate and factor fee of the main five types of small business loans. Consider these numbers before setting your mind on a particular loan.
Along with this, before you head out for business-loan-exploration and start collecting financial documents as per the requirement of your potential lender you must check the repute of the lender.
How can I verify and authenticate my lender?
When a borrower applies for a small business loan, he or she has to share crucial information regarding the business. It is unsafe to share valuable information without checking the repute of the lender. So, how can you assess the credibility of your lender? To be sure, you can visit domains such as Trustpilot and BBB Positive Reviews. These platforms can give you a brief idea about the lender’s history and customer service.
Pay attention to all of the abovementioned factors, and if you have made up your mind, head over to the official website to the Merchant Advisors, and apply for a small business loan to cover all the financial glitches. If you need more tips and tricks, follow us on Facebook (@Onlinecheck) and Twitter (@Onlinecheck). If you have any question, feel free to call us on our toll-free number at (833) 827-4412, our loyal and keen financial advisor will answer your every question and guide you throughout the way.