Small/Big Business Loan
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A small business loan can allow you to start, run or expand a small business. It also provides you the opportunity to purchase equipment, expand locations, hire new employees, or even consolidate debt. Given the riskiness associated with an institution providing a small business with a loan, it is best that the applicant is prepared for the underwriting process. Preparation includes having stable credit, a business plan, and collateral that can be accessed to support your application and loan.
Choosing the best terms for your loan can be a daunting task. Be sure to compare offers through EINSURANCE to ensure you receive the best rates and amounts.
Line Of Credit (LOC)
A line of credit is typically an arrangement between a bank and customer that allows a customer to access a maximum amount of funds at their own discretion. This arrangement essentially allows a small business to run smoothly. In particular, it can satisfy working capital needs, provide liquidity, manage seasonality, and purchase inventory. All of which are key to the day to day operations of a small business. The requirements, rates, and amounts set by the bank can be vary. EINSURANCE will help you find those terms that best fit your situation!
Things To Think About
Securing funding for your business is a large decision. Which product and institution you secure funding with will be critical, as you will typically be governed by the terms of the loan agreement for an agreed amount of time. As such, a few aspects of the loan process you should pay close attention to are:
- Interest rate: consider the long-term ramifications of interest expense
- Overall Market Conditions: timing could have a significant impact on loan terms. If possible, make sure you time your loan submission with favorable market conditions
- Personal/Business Credit Score: better credit scores strengthen your loan application, which increase the probability of you receiving favorable loan terms
- Business Plan/Loan Purpose: have a clear and concise purpose and vision for your requested loan
- Create Competition: your business is valuable. To ensure you receive the best terms, make sure you reach out to several loan providers through
Selecting The Right Loan
A key point to keep in mind is that you should not take out a loan if the fundamentals are not right – this will exacerbate the problem. Loans should be taken out when necessary to assist the core business model. Like technology, money does not solve all issues. It has to be correctly used with a goal in mind. If your business is generating a net loss, more money simply means a larger net loss if you expand, all things remaining equal.
Before choosing a loan, you must clarify what you need it for. A loan designed to increase credit rating will be different from a loan needed to pay for general expenses. The next step it to determine how much you need and how long you expect to have in terms of paying it off (the longer the time, the greater the overall repayment).
Once you are clear about why you need the financing and how much you need, it is time to get the right one. A loan taken out for invoice financing is not the same as a loan designed for trade finance, and will have distinct terms and conditions. Seasonal business models require a completely different kind of loan compared to consistent income companies.
A good rule of thumb is that the expected profits from the loan should exceed the value of the loan itself. Obviously, this only applies to loans seeking to capitalize on a profitable opportunity, not loans to cover expenses such as payroll or rental costs. Additionally, your business should have enough cash-flow to easily make the loan repayments. Never gamble, just play the math.
Still, the most common reason that small businesses to take out loans is for expansion and growth. 60% of small business owners state this as the primary reason for the loan as per the 2017 Small Business Credit Survey.
Different Loan Options
There are many different types of loan options available. One common loan is the SBA (7)(a) which is designed to assist small businesses acquire funding in the USA. While this might have been a good idea a few years back, it is now notoriously difficult to attain this kind of loan. It has increased in complexity (requiring an onerous amount of documentation) and it can take months to successfully complete the process, only to be told that your loan application has been rejected. The SBA (7) (a) is still a great option for small businesses with a stellar credit rating and time to wait for a response, as it typically offers the best terms and conditions.
If you want to take a out a large loan at a future date, it could be a good idea to start with a short term loan initially to build up credit. Business loans for bad credit are available, but they are generally much more expensive and have significant restrictions. If you need it for equipment, there is equipment financing, where the equipment itself often serves as the collateral for the loan. An unsecured business loan is an option for those without any physical collateral, but tends to have higher repayment rates and strict terms and conditions.
A business line of credit offers advantages above and beyond standard small business loans. Borrowers have the capability of taking out finances (up to a certain max limit) and only pay interest on what is borrowed in a given time period. It is one of the most flexible options available. Lenders will require a high credit rating or alternatively high interest rates to offer a business line of credit. According to the SBA, 75% of new business financing is provided by credit cards, business lines of credit, and business loans.