Small Business Loans Through The Government – 2022-06-17 00:00:00 2023-02-01 00:00:00 https:///r/starting-a-business/small-business-loans/ Starting a business english Securing a small business loan can unlock growth for your business. This guide will help you understand the funding options available and what information you will need to prepare to apply for a loan. https://oidam/intuit/sbseg/en_us/Blog/Graphic/small-business-loan-header-image-us-en.jpg https:// https:// https://www/starting-a-business /small -busnes-loans/ How to get a small business loan: Guide and tips |
If your existing or newly established small business needs working capital, but securing investors, a personal loan, or a small business grant is not an option, a business loan may be your best route.
Small Business Loans Through The Government
Business financing can be a long and confusing process. But rest assured – with the following road map, you can gain an understanding of the process and the information you’ll need to gather as you prepare to apply for a business loan.
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In this article, you will learn how to get a small business loan, the different types you may qualify for, and how to choose the best fit for you.
There are many types of small business loans available, including small business administration loans, traditional loans, business lines of credit, invoice factoring, and specialty loans. Explore the different options below to see what could be the best loan for your small business.
SBA loans are financed through small business lenders but guaranteed by the US federal government. The most common loan for this type is the SBA 7(a) loan. Because the federal government backs the loan on behalf of your business, your small business is more likely to get approved than if you went directly to lenders. SBA loans range from $500 to $5.5 million.
You can apply for traditional business loans directly through banks and financial institutions that lend money. Bank loan amounts vary depending on the requirements of a traditional lender, the size of the borrower, and the industry, size and history of your business.
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A business line of credit is similar to a loan in that you are applying for access to a certain amount of money. Once approved, you have access to the funds. Unlike a loan, however, a business line of credit allows you to withdraw only the amount of cash you need, and you only pay interest on that amount of money.
Although not technically considered a business loan, using receivables owed to your business can be a way to access short-term financing when you need cash. There are two options when it comes to using your receivables to access finance.
Invoice factoring is a business practice where your business sells your accounts receivable to a third party company (the factoring company). The factoring company pays your business a large percentage of the invoice amount immediately (often 80%–90%).
Your customer then pays the invoice amount to the factoring company according to the invoice payment terms (30 days, 45 days, or 60 days, for example). Once your customer pays the invoice amount to the factoring company, the factoring company will pay the balance of the invoice to your business, without a fee to the factoring company.
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Invoice financing is a similar, but slightly different, form of financing where your business retains ownership of your invoices, but uses them as collateral to access funding. In an invoice finance agreement, you may be offered finance in the amount of the invoice you are financing against, less any fees the lender takes. offers the option to access invoice financing with Get Paid Upfront invoices through Payments, so you can see your money sooner and get the money you need to keep business going strong.
Specific small business loan programs support specific groups or causes. For example, the SBA’s Office of Women’s Business Ownership and Women’s Business Centers help women business owners find loans. The USDA helps small business owners in rural areas secure loans. The Accion Opportunity Fund provides loans to entrepreneurs who are people of color, women, and immigrants.
Before applying for a small business loan, there are some considerations to keep in mind to ensure you are prepared. Here are some eligibility requirements that most small business loans require:
Credit history is a record of a borrower’s debt repayment. Just like a personal credit score, your business has a credit score too. Lenders usually review your business credit history, but if you’re a new business, lenders may need your personal credit history.
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In this case, make sure you understand what your personal responsibility is if a lender asks to check your personal credit history. If you sign a business loan, you are personally responsible for the debt incurred by your business.
Typically, business loan providers prefer a credit score of around 680 and above. If you happen to fall on the lower end of the spectrum, you may need other strong business qualities as proof, such as high annual revenue and established years in business.
Your business history is a brief description of your business and its financial history. Prepare at least five years of financial accounts and bank statements if you have been in business that long. Lenders look at your history to predict the future. They want answers to questions like:
Your proposal to lenders should specifically address how you will use the money and how your business will repay the loan.
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For example, they want to hear that you will hire software developers with the loan money, and the applications the developers build will start generating revenue within six months of hiring them. They don’t care about the software itself – just that the software will allow your company to pay interest when due for the life of the loan.
Finally, lenders need a clear understanding of your business collateral. If you do not repay your loan, the lender needs to know how they will recover the money lent to you.
Because business assets such as equipment, inventory and accounts receivable all change in value as you operate your business, most lenders will require several types of collateral to complete a loan.
If you have no collateral, the lender may require another lender with sufficient collateral to deliver or guarantee the loan. Lenders will need to see that your business has assets to secure a loan, so make sure you understand collateral requirements.
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Getting a loan for your small business can seem daunting at first, but it will be much easier if you are prepared to enter the application process. Here’s how to get a small business loan in six simple steps.
It may seem obvious that you should decide how much money your business needs before you start looking for a loan, but don’t skip this step for three reasons:
Before jumping into debt, consider your other options. Would it be better for your business to add an additional owner in exchange for equity capital?
Instead of taking out a senior extra employee loan, is it possible to outsource the work to a freelancer and avoid the need for the loan? In other words, make sure a loan is right for your business before committing to a debt financing strategy.
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As mentioned, there are plenty of loan options for your business, but how do you decide which one is the right fit? Review each loan and consider these factors below to determine suitability for your business:
Once you land on a type of loan for your business, find qualified lenders. Think of your business as a customer during this process. Shop around. Play one lender against another, and look for the best possible deal.
Since lenders make their money on interest when it comes to small business financing, they may not offer you their best rate when presenting. Don’t be offended by this. Push Back. Let the lender know that you are shopping their rates and terms against competitors.
A word of caution as you lenders shop: If you give a lender permission to check your credit score, the check will appear on your credit report. You don’t want your credit score to be checked too often in a short period of time. Get as much detail as possible from a potential lender before you give them permission to check your credit score.
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Once you’ve narrowed down the list of lenders, make sure you understand their requirements before applying. For example, most lenders require collateral to secure the loan.
In the legal documents you will fill out to complete the loan, you will offer collateral to your business as the backup. If you do not pay the loan, the lender has the right to seize your collateral, and then sell the collateral to repay the loan.
If a lender is not satisfied with your business collateral, they may ask you to find a co-signer with better collateral. In this case, you want to find a cosigner before the loan documents are ready to be signed.
Understand minimum collateral and any other loan requirements early in the process. Give yourself time to decide what risks you are willing to take to secure your loan.
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The documents required to secure a loan vary from lender to lender and are based on your business history. Some of these documents include:
If your business carries enough cash to cover the entire loan, you probably won’t need much more than a balance sheet and some recent financials. However, the fact that you are probably considering a loan
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