If you're a small business owner looking to expand your company, now's the time to look into financing options.
While the Small Business Administration (SBA) recently announced that it's no longer accepting loan applications for the Paycheck Protection Program (PPP loans), your business may still qualify for a small business loan at an exceptional rate.
Discover how you can make your business plan come to life with a small business loan at a prime rate.
Choosing the Best Small Business Loan for Your Business
When searching for the right small business loan, several factors are critical to keep in mind. Depending on the bank or financial institution you go to for a loan, the application process and loan eligibility details will vary. This includes everything from the minimum and maximum loan amount your business can borrow to the servicing and loan terms.
Also, make sure to research your loan options to find the best interest rates. Interest rates are particularly competitive this year, which is great for business owners in the market for a new investment opportunity or looking to expand their businesses. Remember, business loan interest rate terms can also be flexible. You don't have to opt for a fixed rate on your loan. Choose the best loan terms and conditions that work well for your business.
Additionally, it's important to stay away from lenders who don't operate in accordance with the Federal Deposit Insurance Corporation (FDIC). These lenders might take advantage of small business owners who are in a bind and need to obtain capital as quickly as possible. You risk paying higher interest rates on the loans, unnecessary origination fees or guarantee fees, and operating with capital obtained from an illegal loan program. A good way to ensure the types of business you are lending from is to check an institution's trustworthiness from reputable sources.
Once you have found the right lender and loan option for your small business, you're ready to apply. Many lenders allow the submission of applications online. Online lenders usually have great tools and features (like loan calculators) to help your business determine what it can afford. Also, working with an online lender is usually the fastest way to obtain approval and get started on investing that newly acquired capital.
How Can a Small Business Loan Help My Business?
Wanting your small business to grow and increase revenue is a given. However, some might be wondering if acquiring a business loan is worth the cost of interest incurred over time. While interest rates are an important component of small business loans to keep in mind, the trade-off of having additional funds to support your business can make it a great investment.
As a small business owner, opportunities to work with investors or gain outside funding from grants or other programs are not always a given. Sometimes, a small business operation is better off looking for a guarantee of secure funding through a small business loan. A small business loan can provide your business with the funding it needs to purchase everything, including inventory, materials, and other supplies your business needs.
Small business loans are also a great way to help your business refinance debt. It's not uncommon for many small businesses to have debt, particularly if they are a startup. Additionally, small business loans can be useful when dealing with accounts payable. Accounts payable are the outstanding balances your business owes to vendors and suppliers. Small business loans can help your company pay these outstanding balances to ensure that you maintain good working relationships.
What Options Are There for Small Business Loans?
As a borrower, your small business has many options to consider when it comes to business financing. Applying for a small business loan and business credit cards is not the same as obtaining a personal loan or having personal credit.
From cash flow to credit cards, it can get pretty confusing with all the different types of loans available to your small business. We explain the different loan options below.
Business Credit Line
One option that many banks offer small businesses is an unsecured line of credit. This allows a business to access a maximum amount of funds whenever needed as long as a business pays it back. Business credit lines usually offer competitive interest rates due to their ease of use and simple application process. Typically, no collateral is required to acquire an unsecured business credit line. Additionally, many banks will offer payment plans based on your company balance. This acts like a short-term loan that your business can quickly pay off.
Business credit lines for small businesses can also be secured. Typically, this is accomplished by providing a blanket lien of your business assets or a certificate of deposit at the time of application. In other words, collateral provides the bank with the peace of mind that the line of credit will be repaid. Secured business lines of credit usually have qualifications for the application, such as a credit score within a particular range, a minimum number of operational years under the existing ownership, and a minimum total in annual revenue.
Business Term Loans
Another popular option that many banks and business lenders offer small businesses is a term loan. Term loans permit your business to receive a specified amount of funding as a one-time lump sum payment. In other words, if your business is approved for a term loan, you'll receive the total agreed-upon loan amount to use at your discretion.
Term loans come with competitive interest rates, low annual percentage rates, and the application process is fairly straightforward. Your business won't be required to submit collateral on the loan for your application for an unsecured term loan. If you apply for a secured term loan, though, the requirements are similar to that of a secured business line of credit. Your business application will be required to meet a set of qualifying criteria, such as a minimum number of years operating in business under current ownership, a minimum total in annual revenue, and possible other qualifications depending on the bank and loan amount.
Many banks will offer various payment plan options for your business to repay the loan back over a designated period. For example, you might consider opting for a fixed payment plan over the life of your loan. This payment plan option will ensure that your monthly payments remain the same until the loan is paid off.
Small Business Administration Loans
Small Business Administration loans, or SBA loans, help businesses get loans if they have trouble acquiring one on their own. It's not uncommon for a bank or other financial institution to decide not to lend money directly to a small business if it doesn't fit particular criteria on the application.
The SBA works directly with financial institutions, credit unions, and nonprofit organizations to help small businesses obtain the funds they need to grow, such as through an SBA 7(a) or SBA 504 loans. As such, these loans are easier to qualify for, often provide longer payment terms, and usually have lower down payments on fixed assets compared to conventional loans.
SBA loan rates are also usually lower than conventional loans and don't have any upfront fees or appraisal fees. Working with an SBA lender is a great way for your business to reduce any financial risks involved in acquiring loans and can make it easier for your business to acquire the capital it needs. There are even SBA Express loans to help businesses in need of emergency capital to continue operations.
Specific Business Loans
Some banks offer small business loans that cater to the specific needs of businesses. For example, a bank may offer you a business auto loan if you handle a lot of products or need transportation to provide services to customers off-site. A business auto loan can help your business purchase a vehicle to keep your business moving. Business auto loans can also allow you to refinance your vehicles should a refinancing payment plan be a better fit.
There are also small business loans for commercial real estate. They can help your business purchase the land or properties it needs to keep expanding. For commercial real estate small business loans, you'll need to be prepared to leverage your equity to invest in your business.
Also, keep in mind that loans like these will most likely have minimum qualifications. This might include a minimum number of years operating under existing ownership and a minimum amount of total annual revenue to qualify for the loan.
There are also health care practice loans to help doctors, dentists, and veterinarians start their own practice. Additionally, there are equipment loans that help small businesses acquire the tools and machinery needed to operate. These types of loans also usually have specific existing ownership and annual revenue requirements for qualification.
Streamline Your Accounting With Skynova
If you're a small business owner, keeping your accounts in order is crucial. That's where Skynova's accounting software can step in and help. The platform only takes seconds to get started and you can keep accurate records of your income, expenses, sales tax, and payments.
What's more, you can craft up the perfect business proposal to submit along with your small business loan application. To get started, see how Skynova's software products can help streamline your business operations.
Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific business situation. Always consult with a professional tax accountant or investment banker to ensure that you're meeting federal loan standards and conditions.