Small Business Loans

Are you a small business owner or considering starting your own business? If so, it’s likely that at some point you may need some extra funds to start or grow the business. Perhaps you need to upgrade your equipment, want to move to a different location or just need funding to help your business stay afloat.

No matter the reasons for needing extra funds, obtaining a small business loan may be the right solution. The good news is that there are various types of small business personal loans available. This article will cover details about the different loan options and tips for determining which small business loan is right for you.

How to Choose the Best Small Business Loan

With so many options for personal loans for small business available, it can be difficult to determine which type is right for you. Below is a look at several things you should consider when choosing the best small business loan.

• Purpose for loan: The reason you need a loan may determine the type of loan you need. For example, if you need to update equipment for your business, an equipment loan may be the best option for you. On the other hand, if you’re looking for a loan to help keep your business afloat, a small business loan may be the right solution.
• Loan qualifications: Some small business loans are easier to qualify for than others. If you have good credit, a small business loan may offer the best terms. However, if your credit score is less than stellar, you may have trouble qualifying for a traditional loan. In these cases, you may need to consider alternative loan options.
• Interest rates: When comparing small business loans, one of the first things you want to look at is the interest rates associated with each loan. In most cases, you want to find a loan with the lowest rates, but you also should consider other factors, such as application and processing fees, that impact the total costs.
• Loan terms: Before choosing the right personal loan for business, be sure you understand the terms of the loan. For example, find out how long you have to repay the loan and what your repayment terms are.

Types of Small Business Loans

There are several types of loans available for small business owners looking for funding, including:

SBA Loans

SBA loans are one of the most popular lending options for entrepreneurs. These loans are backed by the U.S. Small Business Administration (SBA) to support small businesses across the country. It can be a little harder to get an SBA loan, but they often come with better terms and interest rates than some other options.

Business Line of Credit

A business line of credit account is a type of revolving account. You can pull money from this account as needed, up to your credit limit. The main benefits of obtaining a line of credit are that you only pay interest on the money you use and your account replenishes as you make payments.

Working Capital Loans

Working capital loans are short-term loans you can use to cover the cost of everyday business expenses. These loans are often smaller in amount and need to be repaid over a shorter time frame.

Equipment Loans

As the name suggests, an equipment loan is ideal for upgrading, replacing and repairing business equipment, such as machinery, computers and furniture. Typically, these loans have a fast approval process, which means you can have access to your funds quickly.

Accounts Receivable Loans

Accounts receivable loans are when you sell your anticipated accounts receivables. In exchange, the lender provides you with up-front cash for your business. Due to the higher risk to the lender, these loans often come with higher interest rates and costs. Rates for AR loans, also called AR factoring, may be based on the creditworthiness of your clients. This involves an element of risk as factoring companies are not collection agencies, so if your customers fail to pay, collecting is still up to you.

How Do You Qualify for a Small Business Loan?

The first step to qualifying for a small business loan is to complete the application process. You'll need to provide the lender with basic information about your business. Lenders may also ask for various financial documents, including your personal and business tax returns, your company’s profit and loss statement, personal and business bank statements and your comprehensive business plan.

The lender will check your credit history to determine your creditworthiness. Most lenders want small business borrowers to have a credit score of at least 620, but you’ll receive better rates if your credit score is over 700. Lenders may also view your company’s debt-to-income, cash flow and debt utilization ratios when determining loan approval

Each lender has its own set of qualifications for small business loans. The most important factors are that you complete the application as accurately as possible and develop a comprehensive business plan. Also, be sure to provide the lender with all required documentation as quickly as possible.

In many cases, obtaining a small business loan may require a personal guarantee. This could impact your personal credit score, especially if you default on a loan.

Other Ways to Fund Your Business

If you can’t get one of the more traditional small business loans, you do have some alternative options.

Personal Loans

If you’re just starting your business or your company lacks a strong credit history, you may be able to get a personal loan. These loans are based solely on your personal credit history and not your company’s.

The benefit of personal business loans is that you can use them for any purpose. These loans typically come in smaller amounts and may have shorter repayment terms. They will impact your personal credit score.

Business Credit Cards

Obtaining a business credit card can also provide the funds you need for your business. These credit cards work just like personal credit cards. You can charge expenses using your card up to your specified credit limit. Once you open a credit card, you may be subject to recurring fees, such as annual maintenance fees. You also are responsible for making all monthly payments on time. Any amount not paid off by the end of the billing cycle will accrue interest.

Obtaining a small business personal loan can be a great way to get the funding your business needs. Be sure to start by developing a strong business plan and comparing your loan options.