Whether it is for covering expenses, payrolls of employees, utilities, or taking on new project, running a small business requires a constant cash stream. Large businesses with strong cash reserves can manage this problem easily, but it still remains a serious problem for small businesses. That is the point where small business loans comes in. In this article we are going to explain where to use a small business loan easily and what are the factors to consider before applying for small business loans.
Small Business Loan Usage
Small businesses normally require funding throughout their start-up or expansion phases, however there are other ordinary reasons that require funding. Here are some of the common reasons businesses seek funding.
Starting a Business
Most startups use their personal savings to effectively run their businesses. However most of the times personal savings are not enough to pay for other expenses. And for that reason, most of the businesses take out a small business loan to cover their expenses.
Managing Cash Flow
There are many seasonal small businesses in US that may need to seek funding to cover up their inventory and other material to complete an order. Sometimes the cash in hand is not enough to buy inventory and therefore owners who cannot cover their cash flow needs from their personal or business savings may require funding. Small business loan is an excellent funding solution to cover cash flow problems.
Business expansion requires large amount of cash and small business loans can help business owners looking for expansion. Whether you are looking to expand your premises, expanding operations as well as want to hire more staff small business loans can help. Small business loans not only providing cash, but can help business owners to achieve faster growth. Another good thing about this expansion funding is that you can refinance your existing debts as well.
Refinance Existing Debt
A business experiencing debt problem can refinance to lower the interest rate or reduce the monthly payments. Refinancing will strengthen their financial position and helping them in the growth of their business with more profitability. Most of the times, business owners take out a loan and then continue making their repayments until the full amount is paid off, however refinancing existing debts can help you save on interest rates with better terms.
Things to Consider for a Loan
When looking for a small business loan, you need to fully understand the process and other credentials involved in the small business loan process. You’ll need to consider multiple things to find the perfect small business loan. Here are some factors business owners should consider before applying for a loan:
Know How Much You Amount You Require
Whether you’re just starting up or are expanding your existing business operations, you need to explain three things to your lender;
- How much amount of cash your business needs?
- How the business will use the loan amount?
- How the business will make repayments on the loan?
Understand the Borrowing Cost
You need to understand how much borrowing costs you. APR is the most common measure to evaluate borrowing costs. Business owners may find it quite difficult to maintain profitability when the cost of capital is too high.
Know About the Repayment Terms
Based on lender’s requirement, small business loans have a variety of repayment terms and plans. Consider the repayment terms and choose one that will not hurt your overall cash flow. Make sure you fully understand the terms and conditions of small business loan before applying for one.
Most of the lenders want to know what type of collateral you are setting up to back the loan amount. However there are also some that won’t require collateral. However startup businesses must provide some sort of collateral to back the loan amount.
How Much Funding You’ll Receive
Many businesses experience financing shortfall just because they were approved for smaller amount of loan than what they actually needed. Therefore it is important for potential small business borrowers to fully understand their business financials and request for the amount that can cover up your business financial needs.
Types of Small Business Loans
SBA loans are back by government guarantee and are the safest type of loans. These loans can help you to fund your small business. The lending criteria for these loans is somewhat lengthy as compared to some other type of alternative funding programs. SBA standardized some loan requirements that you need to fulfill to get an SBA loan. If you need funding quickly, these loans are not for you as the lending process takes a lot of time to get you funded.
Small Business Loans
Small business loans are one of the major types of alternative funding. Due to their simple to apply and easy to acquire nature, these loans are highly preferred by small businesses. Small business loans are normally used for buying inventory for busy season and expansion purposes. If you need to fund the inventory purchase, small business loans can help you.
Bad Credit Business Loans
Bad credit business loans can help you to boost your sales by providing you the funding that you need even with bad credit. These loans are especially made to help deprived bad credit businesses. The best part of getting this type of funding from is that you don’t need to provide any collateral or personal guarantee.
Merchant Cash Advance
Merchant or business cash advance can help you to get your required funding immediately. This is one of the fastest types of funding program that can provide funding on the same day of applying. If you need immediate funding to fund your small business, this type of funding can best suit you. The repayment is quite simple, your lender can take a set percentage from your daily credit/debit card sales.
Unsecured Business Loans
Unsecured business loans are the type of small business loans where you can get funding for your business even if you don’t have nothing to pledge as collateral. Their no collateral requirement nature make them the most preferred option for small businesses.
Business Line of Credit
Business lines of credit is another type of small business funding. These lines can help small businesses to draw a credit line from their receivables and use it for investing in business. These lines comes in two types, short-term business line of credit and long-term lines of credit. Short term lines of credit are made to cover the short-term financial requirements of small businesses. However, for long-term lines of credit, your need to have a good credit score. With long term lines of credit, businesses can cover the inventory purchase, cash flow issues, and other operational expenses.