The Top Places to Find Federal Business Loan Grants

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When you start a business, one of the biggest hurdles – funding – can seem unsurmountable. You can obtain funding using multiple means. One of the basic ways is to bootstrap your business, but if cobbling together small amounts from various areas of your personal budget and maxing out your credit cards does not appeal to you, you can go through the more formal approach of applying for grants or loans.

Best Places to Look For Federal Business Loan Grants

The federal government provides both grants and loans to small businesses. You can find both types of opportunities on the Small Business Administration website. But, since both options would take a really long time to complete the applications for, which of the two best suits your needs? If you still don’t know, keep reading and you may get the answer.

The US federal government offers numerous grant programs to help small businesses fund their start-up, development, or expansion. Some of these programs only extend to specific industries or businesses in specific development phases. You will find most of these opportunities on the website grants.gov.

Small Business Innovation Research Program

The Small Business Innovation Research Program (SBIR) provides grants for entrepreneurial ventures that introduce a commercially viable technology innovation. SBIR focuses on specific areas of development such as clean and safe water, environmental/green construction, healthcare advancement, homeland security, and land revitalization. The program works in concert with numerous government agencies, including:

  • Departments of – Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, and Transportation
  • Environmental Protection Agency
  • NASA
  • The National Science Foundation

Small Business Technology Transfer Program

You often see the Small Business Technology Transfer Program (STTR) mentioned in tandem with the SBIR program. The government provides workshops on applying for the funding for both programs. It combines discussion of these two programs since many businesses eventually apply for both. While SBIR funding helps launch a technology, such as helping a tech startup fund development of its minimum viable product (MVP), the same company may later develop an expanded use for the technology. The STTR program provides grants for innovative research and development. There must be an existing technology involved, hence the connection to SBIR. STTR small businesses develop their technology in formal collaborations with research institutions. Not all US government agencies participate in the STTR program. Those that do include the:

  • Departments of – Defense, Energy, and Health and Human Services
  • NASA
  • National Science Foundation

Although they each participate in the STTR program and that program has its own application process, each agency also has a say in how things get done. These agencies set their own guidelines and grant deadlines. That means that the DoD may have an open STTR opportunity at a time when DoE or NIH do not. The federal website, grants.gov, lists all open STTR grants and specifies which agencies participate. Here is a brief rundown on the focus of each:

Whew! That’s it for the STTR program. Now you know why it and the SBIR have their own workshop devoted solely to them. The vast program extends across numerous federal agency boundaries and though most use the STTR’s mechanism for application, some add their own special twist to things. You must follow each agency’s quirks and rules.

Federal Grant Programs That Support Service as a Type of Start-up Business

SBIR/STTR makes a great choice if your business engages in R & D, but unless you will create a minimum viable product (MVP)  that will eventually go into mass production, you cannot use the STTR option. You must develop an actual product to qualify for the SBIR. This means you cannot use these options if the business you start provides a service. There are federal grant programs that do support that type of business though. The Innovate HER program from the Small Business Administration provides just such a program.

InnovateHER Women Business Challenge

It hosts a grant contest to open only to women-owned businesses with a business plan. The company must offer an innovative product or service. Rather than apply to a federal level program, the applicant applies to a local Challenge hosted by a local organization. The local challenge winners advance to the semi-final round. Those winners compete at the national InnovateHER business challenge. They must pitch their ideas to expert judges who select the top three businesses. These three receive awards of $10,000 to $40,000. The business can be in the start-up phase, so it works well for those in the planning stage. The program also looks for businesses that improve or positively impact the lives of women.

Tired yet? There are a TON of business loan opportunities from which to choose if you are starting a new business or developing an existing one. The best way to get started is to visit the grants.gov website and peruse the grant programs. Each program has its own request for proposals (RFP).

Okay. Now, if you have never slogged through, I mean, read, an RFP, prepare yourself. If your dentist pulled your teeth without anesthetic, it might be more fun. Sorry to be so honest, but it is the truth.

RFP Application Details

I spent a lovely decade at the University of Oklahoma working in various nerdy, science, and weather/climate-related departments, and wow, have I read a lot of RFPs and written a ton of grant applications. RFPs require a pot of espresso. Nope. I did not mean an espresso shot. I mean you go brew a full pot of coffee but use espresso. RFPs describe the grant program, the specific offer, or need of the agency in excruciating detail. It also includes excruciatingly detailed information on how to format the application.

How detailed you ask?

Let me warn you. You must use the font they say to, the font size, the headers they specify, the order of the items in your line-item budget. You might break into tears while working on one. It is not a girl thing.

They do that because they need to compare actual apple to apples. They need to be able to lay a few budgets next to each other on a table or in a virtual desk and compare and contrast.

Sometimes, the directions for how to prepare the application packet actually goes longer than the application. Your RFP could be 30 pages, but your application will only take 20 to prepare. Go make your coffee now.

Choosing a Grant or Loan

At the most basic level, the difference between a grant and a loan boils down to whether you need to pay it back. A grant you get to keep the money without repayment while with loans you must repay all of the funds within a specified period. Some federal loans may charge zero interest or feature very low-interest rates.

The other truly basic difference is that with a grant, you must spend the funds exactly as the grant specifications say you may. With a loan, in most cases, you get to spend the funds in the way which you would like.

The thing they have in common is paperwork. You have to put together an application package. This requires a cover page with titling and categorical information provided by the grant funding application organization; an executive summary of both the need and the intended use of the funds; budget, typically line-item, and a budget description that details each line item; a description of any positions to be funded by the money; and a descriptive section that describes the details of the need, the reasoning behind the grant or loan request, delves into the existing research or product development, and explains the anticipated or desired outcome of the project.

Grants and loans do not provide a shortcut to successfully funding. You will put just as much time in as you would on landing angel investor funding or entertaining a venture capital firm. Some loans do require you to stick to the spending you detailed in the application. Read the requirements carefully.

Federal or Private Foundation or Lender Funding?

There are many options to finance your business. This article focuses on your federal funding options using business grants or business loans. Private foundations and your local banks also serve as options for funding. While this article focuses on the government, I will provide a quick, short list of private grant opportunities for small businesses:

  • Bill and Melinda Gates Foundation Grand Global Challenges
  • Caleb Brown Urban Entrepreneur’s Community grant
  • Eileen Fisher grant program
  • FedEx Small business grant
  • InnovateHER Women Business Challenge
  • Nav’s “Legitify Your Small Business” grant

Loans, You Can Take Out Loans, Too

Maybe you think that loans are not what you want. You do not want to pay back the money but wait. In many cases, a federal business loan makes great sense. That is because it helps you build your business credit while it funds your business needs. Plus there really is no business loan shopping since the sources remain so limited.

A government loan gives the new business the best chance at a yes. Most for-profit lenders refuse loans to anyone without strong credit and a great financial history. You do still need to have decent credit, but you can rely on your personal credit if the business is in the start-up phase. Like the grants, you must follow program guidelines including the repayment period and interest rates. These rates are far less than those in the for-profit sector though. Also, loans require no competition. As long as you are creditworthy, you will receive the money.

If you take out a loan though, you MUST pay it back. If you default on a business loan, you essentially lose your business. You can have your equipment repossessed. Your lack of repayment could also result in a business lien, a UCC filing, or cause you to need to file bankruptcy. If you do not pay back a business loan, you have ruined your credit. Your Dun & Bradstreet report will tell the dastardly tale and no organization will do business with you. You think I am kidding. Every business deal relies on your D&B.

Create Your Business D&B Account

Business does occasionally use Experian but typically relies on D&B reports. You must set up an account with the organization because it does not automatically monitor a business’ credit. You must register with your FEIN. All federal grants and most of the federal loan programs require you to have a D&B.

Setting up the account is a simple process. You can do it online. I set up the D&B for my consulting firm in 2013 and found the process straightforward. You will need essential business information in front of you including your physical address, mailing address, banking information, and your FEIN. Let me say it one more time: you cannot apply for federal government grants without a FEIN and a D&B account.

Where to Find Federal Business Loans

Although the US federal government is huge, and I mean massive, the agencies that offer loans are few. There are two. Yes, really.

The USDA and the SBA.

That is it.

USDA

The USDA offers low-interest loans to agricultural producers. In case you wondered, an agricultural producer means a farmer or a rancher. The government and academia really LOVE fancy terms. The Department of Ag also offers help to spur the development of economic growth in rural communities. This means that some rural businesses related to agriculture may also qualify. You can apply for these loans through your local Ag Development office or online at the USDA website. While it might seem like it would be simpler to just go to the website, you will probably benefit from a visit to the local Ag office. The personnel there specialize in these loans and their knowledge can help you build a stronger loan package.

SBA

The SBA authorizes the loans and provides a government-backed guarantee so that lenders know their risk is absolved if you do default since the government will pay off the balance. The Administration offers a number of loan programs, each targeted toward a specific business need.

  • 7(a) Loan Guarantee Program – This is the loan for startups and expansion. A business can obtain a loan of up to $5 million through this program
  • MicroLoan Program – This program provides loans for short-term purposes including office furniture, computers, transportation, or other goods. A business can obtain up to a $50,000 loan
  • 504 Fixed Asset Program – Businesses with a business model the provides a direct benefit for their community can apply for these loans that offer a fixed-rate and a long term. The latter makes these easier to pay off since the length of time spreads out the payments so they are smaller. The typical community benefits include jobs or introducing needed services to an underserved area. A business can obtain up to a $5 million loan
  • Disaster Assistance – When a natural or man-made hazard impacts a home or a business structure, this loan program provides low-interest, long-term loans to fund property repairs to the pre-disaster condition

Every program requires a good business credit score and report. Each state has an SBA office. While you can use the website to apply, visiting in person can help you by letting you meet with a program representative who, like with the USDA loans, can provide tips and advice on how to best present yourself in the loan package.

In Conclusion

You can get a loan or a grant for your business to help with startup costs or to expand your operations. The federal government provides numerous programs for these grants and loans. Get started on the USDA and SBA sites for business term loan lenders and grants.gov and usa.gov/grants for competitive today.

A Business Loan Terms and Definitions Handy Guide

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You might have come into contact with certain loan terms. That is if you ever tried obtaining an auto loan, student loan or a mortgage. But when you business loan shop, you need to understand business loan terms and definitions. Because this type of loan includes a lot of specialized languages, this is our topic today.

A business loan can contain collateral requirements. Because of this, avoid signing any document you do not completely understand. Most importantly, you need to understand the basics of business loans. Remember, you need to understand every word. Because you could be signing away your business if you default on the loan. Therefore, it is a good idea to keep a copy of this business loan terms and definitions guide with you. Especially while you read over the loan application and the loan documents.

Article Warning: This will not be the humor infused feature article to which you have become accustomed. This is a glossary.

Business Loan Terms and Definitions: Glossary of Terms

This mini-dictionary provides you a quick, efficient method of finding the term you need. It will help you understand it and its related or similar terms. Also, you can keep this open for finding terms using control plus “F”. Do this especially while you read the loan documents from your financial institution. These documents will include the information and documents you need to include with your loan application. Also, you’ll be given explanations of the terms used on applications and the terms used in loan documents. When it comes to your financial education, knowing this stuff is the basics. You simply cannot do anything in the bank or when communicating with the lender if you don’t know what they are talking about.

Because of this, it’s always important to get to know the basic terminology, whether you are getting a loan, a mortgage, a credit card, or something else. This is the only way to avoid being tricked into accepting something you would not normally accept. And by normally, I mean had you known what it actually means. So make sure you check your knowledge before entering any kind of financial talk. This blog encompasses all relevant business loan terms. Maybe you know some of them, so it’s great to revise. And maybe you’ll learn something new. I hope you will.

So, let’s jump right in and start because you definitely need to know this awesome stuff.

Financial Statement Terms

Firstly, when applying for a business loan, you will need to place with the loan application numerous supporting documents. As you maybe know, these documents include financial statements. These statements describe the current state of your business and forecast its potential. We’re not going to go into each individual document, what it shows and why the lender needs it. But we’ll try to cover as many terms as possible which you may come across when you start applying. Remember, the internet is full of useful information. Loanry is a credible source you can use to research various topics about business loans, so use it!

Assets and Balance Sheet

The first two terms we are going to discuss are assets and balance sheets. Assets are any item of value or ownership or interest in personal or real property. It can be leveraged as collateral for obtaining a loan or to pay off a debt. On the other hand, a balance sheet is a financial statement typically calculated monthly. It defines the assets, liabilities, equity and net worth of an organization as of a specific moment in time. You can see how relevant these are when you’re applying for a loan.

Business Plan

Secondly, we have a detailed document that defines your business framework, strategy, and development plan. These are typically professionally researched, written, printed and bound. The contents of this document include an executive summary, industry or sector overview and how your business fits within the sector. Also, it includes market analysis, competition analysis, your marketing plan including your Unique Selling Proposition, management plan including your specific legal structure.

Moreover, it consists of a complete accounting of management resources, operating plan, financial plan with detailed financial statements, balance sheet, income statement. Also, it includes the cash flow statement or cash flow projection if yours is a new business. The business plan’s appendices and exhibits include marketing studies, product photographs or mockups and relevant legal documents. Businesses often hire a consultant to lead the research and development of a business plan.

While we’re here, let me just take a short detour. A business plan is something you should definitely have, regardless of whether you’re planning to get a business loan or not. This is literally your way to success. Without a carefully constructed plan to guide you as a new entrepreneur, you have no chance. I mean, maybe you do, but it’s much slimmer. A business plan means that you invested time in the route which you are going to take so you would succeed. And lenders like to see that.

Business Revenues

Thirdly, we have business revenues. This is the amount of money a business receives in a definite time period such as the first quarter. This figure includes deductions for returned merchandise and discounts. Your business revenue, also called gross income, is the figure you subtracted from when calculating net income. When you apply for a loan, the financial institution will require full disclosure of the business revenue, typically for the past three years, and your Debt Service Coverage Ratio (DSCR). You do not have this information when founding a new business, so you forecast projections based on anticipated product sales.

Capacity

Onto the next one: capacity. This refers to the repayment ability of an organization. Part of a loan application consists of the capacity documentation which includes a repayment schedule accompanied by an explanation of the sources of the repayment funds. An organization’s capacity includes its revenues, expenses, credit history, cash flow and timing of cash flow.

Capital

This term refers to the cash, assets and the organization utilized in transacting its business; also, the owner’s investment in the organization. The loan officer will consider both the capital’s amount and quality.

Collateral

The next term we’re going to talk about is collateral. This refers to the sum total of assets personally owned by the applicant that will be offered as loan security. Banks require collateral, but alternative lending platforms typically require little to no collateral. Therefore, you must provide documentation of your collateral.

Current Ratio

Next we have the current ratio. This is a measure of liquidity calculated by dividing the current assets by the current liabilities. The greater the ratio, the more significant the cushion between an organization’s current obligations and the organization’s ability to meet them.

Equity and Equity Participation

The next two terms are equity and equity participation. Equity refers to the value of an organization’s property greater than the total debt held on it. This can be an owner’s share or percentage of a business that earns them a return of the profits. This type of investment carries a greater risk than a loan, but also provides greater returns, if successful. On the other hand, equity participation refers to an owner of an organization or partner in a business venture. Importantly, the equity participant provides an investment in exchange for a potential return on investment (ROI). ROI depends on how profitable the organization becomes.

Fund Balance and Limited Recourse

The next two are pretty short and easy to remember. On one hand there is fund balance. This refers to a calculation of total assets minus total liabilities. Also called net worth in a nonprofit organization. On the other, we have limited recourse which are rights only to specifically stipulated assets to satisfy an unpaid debt.

Loss Reserves

Next, are loss reserves. This is a permanent capital or a part of the fund’s earnings that the board of directors has designated as a reserve against a potential loan loss. The loan reserve remains unavailable for lending purposes. Loan loss expense must be reflected as an annual expense deduction on an accrual basis. The loan loss reserve is shown as a contra asset that reduces loan assets. On a balance sheet, the loan loss reserve is shown as a loan portfolio deduction.

Net Working Capital and Net Worth

Finally, we have two terms that are known to you. Net working capital in business refers to a calculation including in the loan application of current assets minus current liabilities. Lastly, when it comes to financial statement terms is net worth. This refers to a calculation achieved by subtracting the total liabilities from the total assets. The aggregate net value of the organization. This is called fund balance in a non-profit organization

Business Loan Terms and Definitions: Real Estate Terms

In business, real estate loans have a few terms of their own. These apply to types of business loans offered only in this specific industry.

Firstly, there is a bridge loan is a short-term loan generally used in real estate that provides temporary financing until the buyer obtains permanent financing. Another important term is interim financing. Similar to a bridge loan, this provides a short-term loan to in effect until the debtor obtains permanent financing

General Business Loan Terms

Some business loan terms do spill over into other types of loans. And ome you will hear in investment circles or in discussions of economic theory and practice. Let’s cover those as well, so you have a complete glossary of all the basic terms you could come across.

Bad Debt, Capitalization, Capital Markets, and Cash Flow Financing

  • Bad Debt. A debt the creditor cannot collect which becomes worthless
  • Capitalization. A term used in long-term debt which refers to the amount borrowed, what is repayable to third parties and the permanent capital
  • Capital Markets. Those financial markets, including institutions and individuals, that exchange security, especially long-term debt instruments
  • Cash Flow Financing. A short-term financing option to cover cash shortfalls when revenue is forthcoming such as payment of receivables

Conditions

Refers to an economic climate term that encompasses externalities such as general economic particulars. And the financial situation of the lending institution and the borrower. The term also includes reference to the loan’s purpose. So when filing the loan application, the applicant must include details on the money’s use. I’m going to quickly mention something that’s maybe obvious. You can always ask about any terminology that you may not understand clearly. Or you can go online (like you’re doing right now) and research yourself. Just don’t let it go and hope for the bast.

Covenant

A formal agreement or contract that agrees to do or not do a set of items. It can be a part of a deed. The covenant includes full disclosure, preservation of net worth, asset quality maintenance, adequate cash flow maintenance, control of management. Also, it includes control of growth, assurance of legal existence and concept of going concern and provision for lender profit or program goals.

Credit Score

Refers to the business’ FICO score. Yes, businesses have them, too. There are several kinds of business loans. But for all of them, this remains the single most important factor when attempting to obtain a business loan. When looking for a loan to establish a business, the applicant must use their personal FICO score to obtain the loan. This applies to both bank loans and Small Business Administration loans.

Current Asset and Current Liability

  • Asset. An asset that typically converts to cash within a year
  • Liability. Liability that will normally be repaid within a year

Debt, Debt Service, Debt Service Coverage Ratio, Debt Service Reserve

  • Debt. The amount owed on a loan. This includes the loan amount and its interest. Plus fees that are secured by a bond, note, mortgage or another instrument. The note includes the repayment and interest provisions
  • Debt Service. Refers to the regular due payment required to meet the debt agreement. It typically comes due on a monthly, quarterly or annual basis
  • Debt Service Coverage Ratio. Refers to your debt relative to your income. Banks prefer a DSCR of 1.25 or greater
  • Debt Service Reserve. Refers to cash reserves the borrower sets aside to repay the debt in case the business operations generate insufficient funds. This may be required by the covenant

Default, Delinquent, and Due Diligence

  • Default. Refers to a failure to repay the loan or comply with the covenants
  • Delinquent. This refers to late, overdue, past due or unpaid bill or loan
  • Due Diligence. Refers to the practice of fact-checking the materials and critical assumptions the borrower presents. It includes confirming the accuracy of financial statements, verifying income sources, the value of collateral assets, borrower tax status and other material facts

Endowment or Trust, General Recourse, and Guaranteed Loan

  • Endowment or Trust. A fund containing assets that earn income and restricting income withdrawn from the fund to that earned by the assets
  • General Recourse. Lender’s right to demand payment from the debtor, accessing their general assets without seniority in access to specific assets
  • Guaranteed Loan. Refers to a third-party’s pledge to cover the debt payments. Or perform an obligation if the debtor fails to make payment

Intermediaries

Refers to institutions with special lending capacities that obtain capital through equity and low-interest loans. They typically obtain capital from other funders such as foundations. This creates a lending pool from which the intermediary processes many small loans or investments. This includes some banks, credit unions, loan funds, and venture capitalists. Don’t let the fancy terminology scare you or confuse you. By now you saw that almost all terms have pretty simple explanations.

Lender-Agnostic Market and Leverage

  • Lender-Agnostic Market. Refers to brokers or loan marketplaces that connect borrowers with alternative and traditional lenders.
  • Leverage. Refers to the practice of utilizing long-term debt to secure organizational funds. It can also refer to financial participation by other sources in social investment.

Liabilities

  • Total Liabilities. The total value of financial claims on a firm’s assets. Equals total assets minus net worth
  • Limited Liability. Limitation of shareholders’ losses to the amount invested

Line of Credit, Linked Deposit, and Loan Agreement

  • Line of Credit. Agreement by a bank that a company may borrow at any time up to an established limit.
  • Linked Deposit. A deposit in an account with a financial institution to induce that institution’s support for one or more projects. By accruing no interest or low interest on its deposit, a foundation subsidizes the interest rate of the project borrowers.
  • Loan Agreement. A written contract between a lender and a borrower that sets out the rights and obligations of each party.

Market Rate, Negative Covenants, and Opportunity Cost

  • Market Rate. The interest rate at which a company receives its loan funds. Businesses can receive a zero-interest rate or below market rate interest rate on program-related investments.
  • Negative Covenants. Refers to an agreement or contract that stipulates actions or events the borrower must prevent.
  • Opportunity Cost. This refers to an economic principle related to the Pareto optimal. It describes the missed potential benefit from not following the financially optimal methods.

Personal Guarantee

You probably know this term from auto loans or student loans. It refers to a document that the borrower signs stating a legal promise to re-pay. In a business loan, this guarantee typically includes specific methods including liquidating collateral to pay the remaining balance. As you can see, there are some terms which appear in different context. Make sure you pay attention to these. And even if you are absolutely sure you know a term because of your past experience, it isn’t a bad idea to double-check the meaning in the context of business loans. Moreover, you maybe learn something new. And you also may save yourself from making a huge mistake.

Portfolio

This refers to an investment term describing the total sum of assets held by an individual or group. This includes those that provide both financial and non-financial returns. Typically, a portfolio includes a variety of assets vis a vis type and size. They are referred to as the asset mix or portfolio balance which maintains an appropriate risk and return level.

Principal and Program-Related Enterprise

  • Principal. Refers to the amount of the loan. Importantly, you pay interest based upon the principle of the loan
  • Program-Related Enterprise. A revenue-generating enterprise that promotes the organization’s social purpose goals. It can be a product or a service that charges a range of prices from fee-for-service to a full-scale commercial venture

Program-Related Investment, Promissory Note, and Receivables

  • Program-Related Investment. Refers to a fiscal term including all asset purchases, conversion of asset(s) to charitable use, equity investments. Also, it includes linked deposits, loans, loan guarantees, and some recoverable grants.
  • Promissory Note. Similar to the personal guarantee, the promissory note is a legal document which the borrower and the lender sign
  • . In this note, the borrower promises to repay the loan. And that provides an evidentiary document of the borrower’s indebtedness
  • Receivables. It refers to the accounts receivable of an organization which refers to the amount owed to the business typically due to an extension of credit

In Conclusion

You probably did not guess that borrowing money for your business would use so many different business loan terms and definitions. If all your loan experience consists of auto loans or educational loans, you probably had a few surprises. However, you now know many of the terms specific to business loans which can help you in business loan shopping. As with any part of your finances, you need to be up to date. It’s important that you understand everything about loans, credit cards, mortgages when you read about them.

Without proper education, you will not be able to understand your rights and your obligations. You’ll certainly get into financial troubles if you don’t understand terminology and definitions. New ones pop up every day as the lending community changes and grow. As recently as two decades ago, there was no online banking. But today, we bank online and apply for loans on the Web. Check back with us here at Loanry. You’ll learn new business loan terms and definitions as online banking and investing develop. And you can also find a lender who may give you a loan.

A Guide to Understanding Different Types of Business Loans

Everyone has heard about personal loans, but not everyone knows the difference between business loans and personal loans. To make it even more complicated, there are many different types of business loans out there to choose from. If your business is a startup, needs new equipment, or is looking to expand, then you might benefit from getting a business loan. Before you make such a big commitment, though, you should learn about the different types of business loans out there. Business loan shopping doesn’t have to be difficult if you have a great understanding of what is offered.

Reasons for Taking Out a Business Loan

Taking out a business loan is a big commitment. You need to carefully consider whether a loan is the best idea and what the effects will be if your company borrows money. The basic premise is the same as with any other type of loan, as far as that you will need to fill out an application and try to get money. But there is a lot to consider.

The first question you should be asking yourself is: why does the business need this loan? Here are some legitimate reasons for business loans:

  • Do you need more space? Are you doing so well your supply can’t keep up with demand? Do you need to hire more employees but don’t have space for them? Business growth is a great reason to take out a business loan.
  • Do you need new equipment? Is your old equipment outdated, or do you just need new equipment to keep up with your current demand? If you really need new equipment, it’s better to get it than to let your business suffer without it.
  • Does your business have seasonal needs? You might need to get supplies for an upcoming rush, or you might need to pay for expenses during a break. A business loan can help you get through those kinds of periods.
  • Does your business need to build its credit? Just like with your personal credit, your business also needs to build its credit. Your business builds credit the same way you do, by taking out a loan and making regular payments on time every time. If you work on building the credit for your business, your business will qualify for better loans with more favorable terms in the future.

Warning Signs

You don’t want to take out a business loan for the wrong reason. Using loans to meet everyday expenses or overextending your business will only hurt you financially in the long run. There are many pros and cons of small business loans, so it is important to make sure that you are making the right decision for your business. Here are some warning signs to look out for:

  • Are you regularly falling behind when it comes to meeting your responsibilities? Is your business just not producing the kind of income you expected?
  • Have the original circumstances changed? You made your original business plans based on a particular set of circumstances. But the only thing you can really count on is change. Take a good look at the current situation and be honest with yourself.
  • Are you trying to bite off more than you can chew? Everyone has big plans, but you need to be realistic if you are going to be successful. Don’t take on more than you can handle.

What Are the Different Types of Business Loans?

As a small business owner, you will need to find funding from outside sources every now and then. It is important to understand the different types of business loans available to you. There are several kinds of business loans, and you may or may not qualify for all of them depending on factors such as how old your business is, what your credit is like, and what you want to use the money for. There is also a big difference between traditional business loans and some more nontraditional ones, and knowing how to seek out the kind of loan you want can save your business money and help build your credit.

One important thing to keep in mind is that most loans go to individuals, but business loans go to the business itself. A business is a separate entity, with its own credit history and creditworthiness. Any effect of not paying will only affect you in relation to how you are tied to the business. The liability you carry depends on what kind of business you have, such as whether it is a sole proprietorship, partnership, limited liability company (LLC), or corporation.

Traditional Small Business Loans

SBA Loans

SBA Loans can be one of the best options because they can offer great benefits. This isn’t the kind of loan to take out for most last minute or emergency needs; U.S. Small Business Loans are for big decisions, like acquiring a company or refinancing a mortgage. Among the benefits:

  • You can choose between fixed rate and variable rate loans.
  • The financing from the SBA is good for up to 90%.
  • There are various loan terms, up to 25 years.

Part of the loan is guaranteed by the SBA, even in cases of default, making this one of the safer options. However, there are some drawbacks, such as:

  • The application can be time-consuming and will include everything from financial reports to background checks and possibly even owner information.
  • Because of the stringent requirements, not everyone will qualify.
  • You may be required to put down collateral to guarantee the loan.

There are different kinds of SBA loans, such as the SBA 7(a) which is specifically designed for very large decisions; the SBA 504 which focuses on real estate, including construction projects; and the SBA Express, a smaller class of loan with a $350,000 cap that is designed more for sudden needs like business equipment, working capital, and other needs. The SBA Express is also different in that once approved, the funds can be available in as soon as 48 hours. The SBA guarantees 50% of SBA Express loans.

Term Loans

Term loans are a more traditional kind of loan and are probably the most common kind of small business loan. Business term loans help with any kind of business needs that can’t be paid with cash, such as new equipment, working capital, or large expansions. Term loans are flexible and have flexible terms, and you can get one from a regular bank or a nontraditional lender.  More established companies like term loans because of the flexible terms, but companies with less history might have a harder time qualifying. The advantages to business term loans are:

  • Term loans have flexibility, such as the amount borrowed, the repayment terms, and the kind of lender used.
  • You can use a term loan for almost any kind of need or situation.
  • Using a term loan can help to improve your business credit ratings.

Drawbacks, on the other hand, can include:

  • Term loans may require at least some collateral to guarantee the loan.
  • There is a lot of documentation required in order to apply for a term loan, including business statements.

The interest rate is often easier to predict on a term loan because it will carry standard fixed rate interest or flat fees. The actual rate may vary widely and can be anywhere from 6 to 30 percent. If your company has been operating for at least 2 years and you can show a high enough level of solvency, a business term loan might be the best one for you.

Equipment Financing Loans

An equipment financing loan is a loan or lease used to purchase or borrow hard assets, like equipment, vehicles, machinery, or computers needed for your business. Unlike the loans already mentioned, an equipment financing loan is a secured loan, in the sense that the equipment itself can act as collateral for the loan. Because it is a secured loan, your equipment financing loan may have better terms, such as a lower interest rate. Not every lender offers equipment financing loans, and your credit will need to be good to qualify. This may also be a good time to consider the advantages and disadvantages involved in buying versus leasing your company’s equipment.

Lease vs Buy Equipment

When it comes to equipment buying versus leasing, you have to take into account your own short term and long term needs and assets. While buying seems like a good idea because it means you can keep the equipment forever and give you more flexibility in dealing with it, leasing could end up saving you money.

When you lease equipment, you don’t have to come up with as much money to start. Unlike the major expenditure when you buy expensive equipment, leasing will probably not affect your cash flow much if at all. Also unlike when buying, lease payments can be written off on your taxes as business expenses. You may be able to get better terms when leasing, especially if your credit isn’t stellar. It is also easier to upgrade to better and more modern equipment as soon as your lease expires.

On the other hand, if you buy equipment, you will own it forever. With some kinds of equipment that lasts a long time, like office furniture, it makes more sense to buy it. If you decide you don’t need it anymore, it’s yours to sell. You may be able to get a tax break during the first year after a big purchase by using Section 179 of the Internal Revenue Code to deduct up to $500,000 of equipment. There are also potential tax incentives for depreciation, so you may be able to deduct money off your taxes because your assets have gone down in value.

Commercial Real Estate Loans

Other traditional loan possibilities are commercial real estate loans. These are secured loans like the equipment loans, and the collateral is the real estate itself. If you have ever been involved in buying your own home, you understand what a long and complicated process it can be, with many players working together to provide the financing, appraise the property, and clear the title, among other tasks.

Because of the strict rules around selling property, the lenders can feel assured that the property really does belong to the person taking out the money. Like property loans, real estate loans are also secured loans. With that security and the fact that the loan is secured, you can get some great rates when it comes to buying real estate. You also get longer to pay off a real estate loan, usually 30 years, although you can usually get a better interest rate with a shorter repayment period.

Business Line of Credit

If you just want to have the funds available if you need them, you may want to look into applying for a business line of credit. You would basically apply for a certain limit but only take out as much as you needed at one time. Lines of credit are a lot like credit cards, in that you have a maximum limit but you can use them to purchase whatever you need at any time. You would need a strong credit rating to apply for this kind of loan, as it is an unsecured loan with a lot of flexibility. It offers some great benefits, including:

  • You can take out funds whenever you need them, up to your limit, without going through another application process.
  • You will only ever pay interest on funds you have actually withdrawn.
  • This kind of credit can help with all kinds of both short term and longer term business needs.

The disadvantages of using a business line of credit include:

  • If you do have poor credit and they offer you a line of credit, you will likely pay a higher interest rate.
  • A line of credit isn’t for big purchases that you would normally take out in one lump sum.
  • They may ask you to provide collateral to back up your loan, turning it into at least a partially secured loan.

Before you consider getting this kind of loan, think about what you need the money for. Some businesses use a line of credit to meet ongoing needs. To purchase supplies they need, or to make up for income they lose when business is slow, such as in the off season. Interest rates tend to be between as little as 8% and as much as 24%.

Nontraditional Small Business Loans

If you’re just starting out, you may not have much credit history yet, so you may not qualify for the traditional business loans. And if you do qualify, the rates might not be as good as you can get with a more nontraditional business loan.

If you are committed enough to your business, you may take it a step further and take out a personal loan to get what you need for your business. If you take out a personal loan to start a business, the rates and terms will depend on what kind of credit you have personally.

The Pros of Using a Personal Loan for Business

The positive reasons that you should use a personal loan for business include:

  • It’s easier. When you apply for a personal loan, the lender will only consider your personal trustworthiness, so you only need to provide information about your own income and credit trustworthiness. When you apply for a business loan, you will need to provide all the information about the business, including business tax returns and other information that can be difficult to get together. You may even be able to apply for a personal loan online.
  • Your interest rate may be lower. Especially if your business is new, you probably have a much longer history of borrowing money and paying it back. That means you may personally be able to get better terms than your business can.
  • It’s usually faster. Because of the larger amount of information that needs to be processed for a business loan, it usually takes much longer to be processed. A Small Business Administration Loan can take months to approve because it is a government loan. You could get your funds with a personal loan in just a few days.

The Cons of Using a Personal Loan for Business

The downsides of using a personal loan for your business include:

  • You’re on the hook. If your business isn’t able to pay back the money, you are the one responsible for paying back all the money. Even if the business closes because it doesn’t succeed, you will have to pay back the entire loan or your personal credit will suffer.
  • Your income to debt ratio suffers. Even if you plan on using all the money for the business, the amount of money will show up as personal debt when you use a personal loan. That means that you may be turned down if you try to take out another loan, like for a house or car, or you may not be offered good terms because of your high amount of debt.
  • It may not be big enough. Even if you have great credit, you probably won’t be able to borrow as much as a typical business loan. An unsecured personal loan might be for thousands of dollars, while business loans can be millions. Unfortunately, the amount you borrow will depend on your own personal salary and ability to pay the money back.

When it comes to business finance, you want to make the best choices every time if possible. In order to grow your business, you have to make some tough decisions, but you can make better decisions if you have more knowledge. To make money, you often have to have money, and shopping for business loans is a way to find a good deal that will give you the cash you need to make an investment in your business.

Long Term and Short Term Business Loans

Another important distinction between types of business loans is between long term and short term business loans. Long term business loans are paid back over an extended amount of time, but there are more differences than that.

Short Term Business Loans

These types of business loans need to be paid back on a daily, weekly, or monthly basis. Normally the entire period for paying back a short term loan is only 3 to 18 months. When it comes to short term business loans, they are usually for emergencies, for immediate financing needs, or to take advantage of an opportunity. Short term loans may have a higher interest rate than longer term loans, and they need to be repaid quickly. The interest rate can vary from 9% to 80%, which is very expensive. Some people make the mistake of turning to short term loans to fill regular needs, keeping them in an endless debt cycle. Unfortunately, if your business doesn’t have good credit, your business may only qualify for a short term loan.

Long Term Business Loans

You can use a long term business loan for almost any kind of purpose. You don’t have to use these types of business loans in a certain way. So you can use them for everything from purchasing new equipment to opening a new branch of your business. There is no limit to how much you can borrow with a long term business loan, as long as the lender is willing. Traditional lenders like banks don’t offer small long term loans, so if you are trying to borrow a smaller amount over an extended repayment period, it is better to use a service that can help you find a loan online.

It is important to do your research when looking for a lender for a long term business loan. Because different lenders offer different amounts, different interest rates, and different terms. Longer term business loans tend to have lower interest rates than short term business loans, with rates ranging from 4% to 30%. While the terms are better for longer term loans, these types of business loans are harder to get.

Keep In Mind

The longer term is a longer commitment. And the lenders want to make sure they can trust you that you will pay off the loan over an extended period of time. Competition is also very high to receive a long term business loan, and there is a lot of paperwork involved. The bank may collect personal information from you before approving the loan, and some lenders will require collateral for at least part of the loan. On the other hand, online loans aren’t as cumbersome and don’t require as much paperwork.

Where Get a Business Loan

But where to find a business loan shop? There are many places where you might look, but make sure you are dealing with reputable companies. Not every company is legitimate, and some offer deals that are legal but barely so.

Luckily, there are ways to recognize and avoid personal loan scams. Plus, there are a lot of legitimate business loan companies that want to lend companies money. Because they know it will help their business. There are so many ways to finance your business. Once you have looked at all of your options and have decided to get a business loan, then it is time to find the right lender. Credit unions, banks, online lenders, and the Small Business Administration (SBA) are all great places to start. The process of applying for a small business loan is pretty simple from there.

The Process Explained

First, you need to select the right loan amount for your business loan. Then you should pull your credit history and score, to see what kind of options you have. For instance, a better credit score could mean a better interest rate. Once you know what your credit is like, you should create a business plan and gather all of your pertinent financial information. Evaluate a variety of lenders, so that you are sure that you have found the best option for you and your business. Then all you have to do it fill out the application and hope that the lender approves it!

Don’t worry if your loan application is rejected, it just means you need to try again. Once you find out the reason or reasons that they rejected your application, you can fix any of the issues that you have control over. Once you have fixed any issues that you possibly can, you should wait for a better time to reapply. Maybe waiting for different market trends is best for your business, or maybe you just need a year or so to improve your credit and build up your business profile. Sometimes you think you found a perfect fit, but it turns out differently.

Conclusion

Regardless of the reason your business needs financing, there is a way to get help with financing. There are many different types of business loans to choose from. And there should be one out there that is just right for you and your business. There are traditional and nontraditional types of business loans. As well as short term types of business loans and long term types of business loans. One of these will be the right one for you.

What Documents Do Lenders Require For A Business Loan?

If you are a business owner, you will most likely have a moment when you consider a business loan. There are many reasons why you may consider a business loan. You may be just starting your business and need some money as your disposal. Perhaps you have a long standing business, but you are growing quickly and you need to expand. Just like there may be many reasons why you need a loan, there are many details to consider. This may be the first time you have considered taking out a loan for your business. Just like with a personal loan, you should carefully consider your options. You should not enter into a loan agreement without making sure it is the right solution for you. In this article, I share all the details you need to know about a business loan, including all the documentation you need.

What Is A Business Loan?

I always like to start with basic information. It is a mistake to think everyone knows about the business loan process. Really, unless you are some heavy duty business person, chances are, you are not up on the details of business loans. In the most basic definition, a business loan is when a lender allows you to borrow money to help you run your business. The lender charges a fee, also known as interest, for giving you the money. You promise to repay the money by making monthly payments for the length of the repayment period.

Business loans can be secured or unsecured. They may also be a line of credit. Similar to a personal loan, an unsecured loan has no collateral or anything backing it. These loans are riskier for lenders. As a result, they have higher interest rates. A secured loan has collateral attached to it. That means you have offered something of value, such as your business or pieces of it, to ensure you repay the money. If you default, or do not pay, on the loan, the lender can take your collateral. A line of credit works similarly to a credit card. You can borrow any amount up to the line of credit. You do not have to use the full amount of the line of credit.

How Do I Get A Business Loan?

The first thing you must do is understand why you want or need a business loan. You must have a purpose for the money. Thinking about this can help you decide if you really need the money, or if you are putting your business at risk. After you decide that, yes, a business loan is right for your business at this time, be realistic in how much money you need. Most importantly, determine if you can repay the loan. A loan is not a gift. It must be repaid every month.

Now that you are sure you want to pursue a loan and you know the amount you need. You are also sure you can repay the loan, it is time to find a lender. There are many lenders out there and it is important to find the one that fits your needs best. Lenders offer different types of loans with varying interest rates. That interest rate impacts your monthly payment amount. Lenders may have different loan terms, also. It is important to find a lender that matches those requirements for you. You may have to do some research. Do not pick the first lender upon which you stumble. Look around and do some research to find the right one for you.

Once you have taken all of those steps and found the perfect lender for you, it is time to fill out an application. You are almost finished with the process at this point. Depending on the lender you choose, you may have to go into the bank and fill out a paper form. If you choose an online lender, you can fill it out on your computer. It is important that the information you provide is accurate. If anything is off it could impact the decision. It make take a couple of weeks before you receive a response from the lender.

What Documents Do I Need?

One thing I did not mention above is the documentation you need when applying for a business loan. As with any type of loan, you must provide documentation when applying for a business loan. I am sure it makes sense to you that potential lenders like to see that your business is profitable. Lenders want to make sure you are investing wisely into your business. Usually a lender will not just take your word for it. They would like to see documentation to prove it.

Some information a lender may ask to see is your business license and resume. They may want your financial statements and the financial statements for the business and any principals that you have. They want to gather the credit history for you and all your partners, in addition to the credit history for your business. Lenders also want to see a guarantee of repayment from all the business owners. Lenders also want to see tax returns for you and the business for the past three years. They are especially interested in profit and loss statements. Also, they want to see your balance sheets and all projections on cash flow. They also want to see financial statements and any projected financial statements.

How Can I Use A Business Loan?

Business face unique challenges. One of the biggest struggles is getting others to believe in your vision the way you do. Not only do you want them to believe in it, but you typically would like some financial backing. In the event, you are not able to persuade people to just give you money, you may need to consider a business loan. The good news to this is you can use a business loan for just about anything for your business. Depending on the type of business loan, you may need to use it for specific pieces of your business. However, that is only if you opt for a specific type of loan, such as an equipment loan. You can use a business loan for upgrading your software or computer equipment. Or you can purchase real estate or a larger building. You may even need it to hire more employees.

No matter what type of loan you consider, you should have a business plan. Many lenders ask to see your business plan because they want to ensure you have a plan. They want to make sure their money is going to grow your business. It is possible that a lender does not require you to have a business plan, but it always a good practice to have one. This helps you understand your goals and provides you steps to move forward.

What Are Small Business Administration (SBA) Loans?

Резултат слика за sba loans infographic

There many types and variations of a business loan in which you could apply. One of those types is a small business administration (SBA) loan. It is a loan that is backed partially by the Small Business Administration branch of the government. These loans are less risky for the lender because it is partially guaranteed.  The loan is still being issued by a lender. It is not issued by the SBA, even though the name of it makes you think it might be. If you cannot repay the loan, the SBA covers the part of the loan that they backed. It is almost like insurance for the lender.

The terms of this type of business loan varies based on the loan. There are no additional limitations on this type of loan because of its backing by the SBA. They range in amount from as low as $500 to as much as over $1 million. They also can offer an interest rate as low as just below 7 percent. The repayment terms for a SBA range from 5 years to 25 years. The typical length of a loan is around 10 years.

There are four different types of small business administration loans. There are micro loans, which are typically available to childcare organizations and small businesses. These loans are usually up to $50,000. Disaster loans fall into this category and they are reserved for damage sustained from natural disasters, such as, but not limited to hurricanes and flooding. There are real estate and equipment loans covering those items that are needed for the business to operate. Also, there is an all purpose small business loan that is the most common loan and that is the 7(a) loan. There are many business loan companies available to provide these various loans.

What Are Equipment Loans?

An equipment loan is a special type of business loan that helps businesses purchase heavy machinery or large equipment. When your business uses an equipment loan to make large purchases, it allows you to save cash. Instead of using large amounts of money now, you can make a monthly payment. Typically, you can only get an equipment loan for a piece of equipment that you are purchasing. You cannot use it on existing equipment. You are using the equipment that you plan to purchase as collateral. That means if you default on your loan, the lender can take possession of the equipment. This gives the lender a little more security in lending you money.

Typically, lenders prefer that you invest in equipment that retains value. Equipment such as semi trucks, tractors, and cranes fall into this category. You may also be able to use this type of loan on ovens and other kitchen equipment for a restaurant. You may also consider equipment such as computer printers and servers, or equipment for manufacturing. There are many benefits to an equipment loan. Lenders often require less documentation than with other loans. You typically get an answer in less than a week, so you can have money quickly.

What Are Term Loans?

Another type of business loan is a term loan. It is the most popular loan of all the business loan types. This type of loan helps business owners procure items that are a large expense that they may not have the cash to pay. These loan covers a large amount of items. These loans can also help improve the credit rating for a business. Whenever you may regular and timely payments, it helps increase your credit score. It may be difficult for a business to have a good credit score. In some cases, a term loan may help.

Nontraditional and traditional lenders provide term loans. These loans are similar to personal loans in that they are for a set term. They are not revolving lines of credit. The length of these loans are usually from one year to five years. You make regular payments on these loans. They can be monthly, or possibly weekly payments. These loans are flexible and easier for a well established business to obtain.

Lenders prefer to give these types of loans to businesses that have been operational for two years. Lenders like to see that the business is solvent with a sound debt to income ratio and continues to have a steady flow of revenue. New startup businesses may find it difficult get an approval for this type of loan. Interest rates vary widely, as they can be as low as 6 percent and as high as 30 percent. Lenders tend to require a large amount of documentation before approving businesses for this type of loan.

What Is Revolving Credit?

Revolving credit is a term with which you should be familiar if you use credit cards. This type of business loan closely resembles credit cards and works in a similar way. A line of credit is a preferred way for businesses to obtain credit. It gives your business much more flexibility. This allows your business to have the money you need when you need it. You are given a set amount of money and you are able to only take as much money as you need. You can continue to borrow money against your line of credit until you reach your limit, or for a set amount of time. Those terms are decided at the time you agree to the loan.

The interest rates for these types of loans are higher than other loans. However, you only have to pay interest on the amount of money you are using. You do not have to pay interest for money that you are not using. Lenders tend to approve these loans for business with good credit.

Why Should I Get A Business Loan?

You and your business associates are the best ones to decide if a business loan is right for you. There are some points to consider when deciding if a business loan is right for you. First, let us look at the reasons why you might want to go to a business loan shop. Are you in a position where you need to expand, but your current space cannot handle anymore people or equipment? If you can show that you have had steady growth for several years, it can help your chances for an approval. Perhaps you need more equipment or you need to upgrade your existing technology.

If upgrading your existing system helps improve your productivity, which can in turn bring in more income. Do you have a seasonal business and you need to stock up on items you need for the next season? If you do not have a steady flow of income at this moment, a loan may help you obtain the items you need. Perhaps you need to build up your credit. You may not have any credit because you are a new business, or your business do not have the best credit. Obtaining a loan may help you build positive credit. Any of these reasons may be a valid reason for obtaining a loan.

There many be just as many reasons why you should not obtain a personal loan. Are you already behind on all of your bills? Or are you in danger of falling behind? Perhaps you do not have a good business plan. You may need to revisit is and make adjustments to your business plan before you consider taking out a loan. It is important to have an understanding of the position of your business. You should realistic about the circumstances of your business. It is great to be ambitious about your business plan and know how much you are able to achieve.

Can I Be Denied For A Business Loan?

Yes, you can be denied for a business loan. It is probably more common that you realize. You could be denied because you may currently have too much debt. You may also be denied because you have limited cash or you may not have enough collateral to put towards the loan. It could also be that a lender does not want to take a risk in the current market. If the market is in too much turmoil, a lender may not take the risk. You may have poor to bad credit history or a terrible business plan.

If you want to ensure that you are approved for a business loan, you should make sure you have better cash flow and work to improve your credit. You may also want to consider non traditional lenders. You may have better luck with a lender that is willing to lend money to a business that has less than perfect credit. If you know that the market is not in a good place, you might want to wait until the market is in a better place. You can watch the market for when there is a better market in which you can apply for a loan. If you are denied a loan, find out why. Pay attention to what the lender tells you. Make corrections where you can and apply for a loan when your business is in a better place.

Are There Downsides To A Business Loan?

There can always be a downside to a business loan, but it depends on your position when you obtain the loan. One of the major downsides is your business is taking on more debt with a loan. You could put your business is a bad financial position if you enter into a loan that you cannot afford. Remember, you should always have a realistic picture of your financial position before you obtain a loan. You should have a clear picture of the budget for your business. This means you need to know how much money you are spending on expenses.

This also means knowing how much money you really make, not how much money you think you should make. Now, is the time for you to look at the cold hard facts and numbers. If you do not have a budget for your business, you should create one now. Do not hesitate with creating a budget. There are many websites available to you to help you create a budget. Before you even start to shop business loans, you need to understand how much you can afford to pay per month.

The last thing you want to do is risk losing your business. This is your dream and you have worked hard to create it. Do not let a bad financial decision ruin that for you. Do not be your own worst nightmare, either. If you remain realistic about your current position and where you can go, you have a chance to survive. If you begin to believe your business brings in more money than it actually does, you might set yourself up for ruin.

Pros and Cons of Small Business Loans: Steady Growth

What is the Major Difference To Long And Short Term Loans, Besides The Obvious?

When you are considering a business loan, you have some choices available to you. Among those choices is the short term versus long term loan decision. I am going to make an obvious statement, here, so forgive me. A short term loan means you have a short term in which to repay the loan. You may have to repay those types of loans in days, weeks, and possibly months.

Short term loans put a large amount of pressure on you as the business owner as you try to repay the loan. You may have to dig into your cash reserves to pay back a short term loan. The original purpose of the loan was probably to keep your cash in place. A short term loan must be repaid in three months to eighteen months. If you need money for a short period of time and can repay the loan quickly, then a short term loan may be the right one for you.

Long term business loans are repaid in monthly payments over the term of the loan. This relieves the pressure on business owners because they tend to have one to twenty-five years to repay the loan. The lender you choose determines the terms of the loan. While the long term loan accrues more interest than a short term one, it also spreads out the interest over a longer period of time so you are not scrambling to repay the loan. If you would like to spread the repayment plan over a longer period of time and you do not mind paying more interest, the long term loan may be a better option for you.

Conclusion

When you are looking for a business loan, it is important to understand the position of your current financial outlook. You want to make sure that you are in a position to repay the loan. Before you start looking at a business loan shop, take a look at your business plan and your expansion plan and ensure that it makes sense. If your business has positive revenue and it continues to grow each year for at least the past five years, you might be in a good position to obtain a business loan.

If you are behind in your bills, or in danger of becoming behind in your bills, you might want to reconsider obtaining a business loan. The intention of a business loan is to put your business in a better position so you can expand your business by obtaining a large space or upgrading equipment. You must keep in mind that you are not just putting yourself at risk, but you are also putting your business and any partners at risk, as well.

Pros and Cons of Small Business Loans: Steady Growth

Can we talk shop for a moment?

I know you’ve been wondering if it’s time. Is it time to get serious about that home business you keep wanting to try? Is it time to expand that part-time work you actually like more than your “real job” so that maybe it becomes your “real job”? Or is it time to hire actual employees for that store front you’ve been managing by yourself or with your spouse? Maybe add some equipment? Increase your inventory? Expand your services? Are there small business loans out there for situations like mine? How should someone like me even approach business loan shopping?

I’ve wondered some of the same things.

The Unique Challenges of Small Business

It can be frustrating, trying to explain your vision to people who aren’t entrepreneurs. They don’t get it, because in their worlds “playing it safe” is always the answer. And for them, maybe it is. Maybe it always will be.

I’m thankful for those friends and their ability to be content with that. They’re hard workers and great people and we love and value them.pros and cons personal loansThat’s just not me. Maybe you’ve been wondering if it’s just not you, either.

Maybe you’ve been toying with the idea of starting your own business, or taking your current hobby to the next level. Or perhaps you’ve already established yourself as an entrepreneur. You’re working out of your home, or you have your own shop, booth, or stall, and you’ve learned some of the hard truths of business finance. I’ve known successful business owners who spent years working out of their truck and their garage. For you, the question may not be whether or not to take the leap, but whether to make the next one longer and higher than you’ve tried before.

Whatever the exact status of your business, your hobby, your passion, small business owners (or those who wish to be) are at something of a crossroads right now. In many ways, you hear, the economy is active and strong. Small businesses are on the rise. At the same time, working for other people no longer seems to offer the promise it once did over time. Some of you have read this in the financial pages; others have experienced it yourself in far too personal terms.

Leaps and Lurches: The Search for Steady Growth

So what should you do? Is it time to jump, or better to play it safe and see how things unfold in upcoming months and years? Is it possible to take small but significant steps forward without unnecessary risk? How can your business plot a course for evolutionary growth? For expansion instead of explosion?

If you want to grow, or get serious about changing course or starting something entirely new, you’ll need resources. That’s not a problem if you have a wealthy relative ready to finance your efforts out of familial affection or the hope of a small cut of the profits down the road, but for the rest of us that means taking out one or more small business loans. It means risk, and commitment, and making endless decisions – many of which we can’t even anticipate yet. It means consequences – good ones, bad ones, and some which may be both.

I can’t tell you what the right call is for you in your situation right now. I wish I could. I’d make a fortune advising folks just like yourself when to wait, when to leap, and when to step cautiously ahead. Plus, I’d be wildly popular and everyone would come to my parties just to hear me pour my wisdom like champagne, only twice as bubbly.

What I can, do however, is help you revisit some of the pros and cons of small business loans and suggest a few things to consider as you shop business loans. Then, if you decide to move forward, we can help connect you with online lenders ready to compete for your business. What you do after that is entirely up to you; that’s how running your own business works, after all!

Business Loan Basics Spelled Out: Loans 101

Growing Pains

Before exploring the various types of small business loans or the specifics of business loan shop, the most fundamental question is whether or not you really want or need a small business loan. What are some good reasons to shop business loans to begin with?

Physical Expansion

Feeling a bit snug where you currently operate? Finding it difficult to display your products or promote your services? Do your employees have to take turns with the community desk and chair? Perhaps it’s time to move or add some square footage to your existing location.

Branching Out

Maybe the solution isn’t making your location bigger so much as making it the first of several. Is it time to add locations in nearby cities or utilize multiple locations for maximum efficiency? Explore your options, but don’t be afraid of taking this leap if the numbers justify it.

Adding Inventory

If your business involves selling products utilizing a large variety of materials, you know the importance of having the right goods on hand. In this age of next-day delivery and immediate gratification, fewer and fewer customers are willing wait for you to order in their preferred colors or replenish whatever supplies are required to serve their specific needs. Or, if your business is seasonal, you may regularly experience “feast-and-famine” cycles which could make periodic small business loans a practical element of your overall business financing.

Adding Employees

While you don’t want to borrow money to meet payroll on a regular basis, initial expansion of human capital may require some upfront investment. There are interviews to conduct and salaries to guarantee – not to mention you’ll need somewhere to put them once hired (see above).

Updating Equipment

There’s no sense buying something just because it’s shiny and new, but if your business uses special equipment or manufactures products, it makes even less sense to fall behind your competitors. Chances are no matter what sort of business you do, you’re using one or more computers, smart phones, and other technology. Don’t upgrade just for bragging rights, but make sure you have reliable, efficient tech if you want to remain competitive.

Establishing Credit

Maybe everything has gone magically for you since day one; kudos to you if that’s your story. For most of us, however, our journey has included some wrinkles along the way – some “downs” which make the “ups” that much more fulfilling. Our credit report probably reflects this range of experiences (hopefully telling a story of determination and recovery as much as risk and periodic reward). The time may come that your business would benefit immensely from access to substantial credit. Don’t wait until that day to shore up your credit history; small, reasonable small business loans now, paid back in a timely and consistent manner, can lay essential groundwork for those moments.

What To Look For In Small Business Loans

If you’ve decided that now is a good time to grow your business, and that a small business loan is part of that, it’s time to break down the basic elements you should consider as you begin to shop business loans. Sometimes it helps to step back and start from scratch in order to think clearly about the right choices for your business and your circumstances.

How Much Do You Need?

If this sounds like an easy one, you haven’t thought it through enough. Take out too little, and you’ve put yourself in debt without doing what you set out to do. Take out too much, and you risk overextending yourself unnecessarily. At best, you’ll be paying back interest on money you didn’t really need. There’s no perfect answer to this one, but run the numbers several ways and get as close as you can before reaching out to business lenders. Be ready to explain to them how you arrived at your total if asked.

What Kind of Collateral Is Required?

Depending on your credit history, your relationship with the lender, and the purpose of the loan, you may be asked to put up collateral on your small business loans. This would be something of value you’re offering to the lender in case you are for some reason unable to repay your loan as scheduled. Don’t take this part lightly. Your home or business may provide ample collateral and allow you the resources you need to grow. They may even help you secure a better interest rate. But if you’re unable to repay your loan for any reason, you risk losing whatever you’ve put forth as collateral. That’s not how the lender wants it to go down, and I’m certain it’s not what you want, but it happens. Think through the ramifications before you sign.

What Interest Rate Can You Get?

Your interest rate is largely a function of your business and personal credit score history, but there’s no need to be discouraged if you don’t have perfect credit. Different lenders use different factors to determine what they’ll offer you. This is one of the biggest reasons you should look at multiple lenders. Try your local bank or credit union, but it’s the 21st century – try a few reputable online lenders as well. Pay attention to the specifics of each (not just the interest rate) before you decide, but I suspect you’ll be pleasantly surprised by some of the online options that didn’t exist for small business loans a generation ago. You may decide to accept a higher interest rate now to begin rebuilding your credit record so that you can negotiate better terms down the road.

What’s the Length of the Loan?

This is another balancing act. You want to keep your payments manageable, and longer terms certainly help with that. At the same time, a 48-month loan will cost you more than the 24-month version, even if the interest rate is the same – which it probably won’t be. If you need that longer-term option and the lender offers it, great. But if you can reasonably pay back the full amount in three years instead of five, you’ll save substantially on total interest paid. Some longer-term loans are particularly difficult for newer businesses to secure and lenders may require additional documentation or security for the loan (see below).

What’s the Late Payment Policy?

No one plans on paying late, but we should be honest about the possibility over a period of several years. What’s your lender’s policy about late or missed payments? Are there extra fees, or just additional interest? At what point do they consider the loan in default? You should pay back every loan in a timely, professional manner, but you may find substantial variations in how different lenders treat minor inconsistencies. Better to know up front just what these are.

Are There Penalties For Early Payments?

I know – who could possibly object to you paying your loan back early? With most traditional business loans this isn’t a problem, but you should clarify up front whether extra payments automatically go towards the principal of the loan or will simply be counted towards next month’s scheduled payment. If your lender does invoke some sort of penalty for paying early, you’ll want to consider that before you commit. This factor alone might shape who you choose for your small business loans.

Small Business Statistics

Interesting Small Business Statistics:

  • 69 percent of entrepreneurs in the United States start a businesses from home.
  • According to the National Association of Small Business’s 2017 Economic Report, the majority of small businesses surveyed are LLCs (35 percent) followed by S-corporations (33 percent), corporations (19 percent), sole proprietorships (12 percent), and partnerships (2 percent).
  • Out of the 50% of those asked, “What’s the best way to learn more about entrepreneurship?” responded with “Start a company”.

 

In 2018, the most popular small business loan methods were:

  • Personal funds 77 percent
  • Bank loan 34 percent
  • Borrowing from family/friends 16 percent
  • Other funding 11 percent
  • Donations from family/friends 9 percent
  • Online lender 4 percent
  • Angel investor 3 percent
  • Venture capital 3 percent
  • Crowdfunding 2 percent

Short-Term Small Business Loans

These are loans usually scheduled for repayment in a relatively tight time frame – from several months to several years. They’re somewhat comparable to buying a car. It’s still a lot of money, but it’s doable, and in a few years, if you keep up as you should, you’re clear. If you’re trying to build your business credit history, these are where you’ll start. Some lenders require short-term small business loans to be tied to specific purposes – purchasing equipment, expansion, inventory, etc.

Short-term loans tend to be for relatively small amounts, although what that means will vary widely with the type of business you own. While your credit still matters, lenders are more likely to take a chance on small business loans scheduled to pay off over a shorter term. Some forms of these loans dramatically differ from your car payment by being scheduled for repayment in weekly, or even daily, amounts. It all depends on the terms you work out with your lender.

Long-Term Small Business Loans

Most of the time, small business financing for gradual growth will involve relatively short-term loans of manageable amounts. There are circumstances, however, in which you may need to shop business loans for much larger amounts and for longer periods of time. If you’re building new locations or purchasing expensive equipment, the investment required may not be something you can reasonably repay in four or five years. If short-term loans are somewhat like buying a car, long-term business loans are more like buying a house.

I suppose we’d all love to have this sort of problem – so much growth that we have to start business loan shopping just to keep up. Perhaps, then, we should take a moment and consider a few of the realities of longer-term small business loans and what you need to know going in.

Long-term small business loans aren’t usually tied to specific purchases or purposes. They may be taken out to cover a variety of needs while your business establishes itself or grows. Just because the lender may not require proof of specific purchases doesn’t mean you shouldn’t have a good idea where the money is going before you sign up, however. While it’s impossible to predict all factors with certainty, you should have a fairly detailed business budget broken down into a spreadsheet – for your own reference as much as anything.

How will this loan help you move forward? How will it make you more profitable, enabling you to pay back the loan and still come out ahead over time? Just like in our personal lives, even large amounts of money can suddenly disappear quickly if we’re not fully intentional about where each dollar is going.

Features of Long-Term Small Business Loans

Most traditional lending institutions like banks and credit unions are going to have fairly rigid requirements for long-term small business loans. Your credit score will be a larger factor, and most will have minimum amounts you must borrow to qualify for extended financing. While you’re generally expected to arrive with documentation demonstrating your personal credit worthiness and your business’s ability to pay back any loan, the paperwork requirements will be more extensive for a long-term business loan. It’s unusual for traditional lenders to extend long-term loans to new businesses or any small business unable to document several years of substantial profitability and a clear plan for growth in the near future.

Online lenders are more likely to demonstrate flexibility both in terms of minimum amounts required to take out a long-term loan and their willingness to work with newer businesses. It will probably not surprise you to hear that we’re big fans of online business lenders – but we’ll come back to that in a bit.

Interest rates on long-term loans

Interest rates on long-term loans tend to be a bit lower than for shorter-term loans, which is great but not the money-saver you might expect. The extended terms mean you’ll be paying more over the life of the loan than you would with a much shorter-term loan at a higher interest rate, even if the amount borrowed were comparable. That’s not necessarily a bad thing; it makes sense that it costs a bit more to borrow larger amounts or for longer periods. Still, it’s always a good idea to run the total amount you’re likely to repay under whatever terms you’re able to secure. Thankfully, it’s the 21st century and there are free online loan calculators available for you to experiment with zero risk and no one even watching.

As with a house payment, the most traditional repayment schedule for long-term loans involves monthly payments. You may be given the option of fixed-rate interest or adjustable-rate interest. Fixed-rate, as the name implies, means the interest rate established at the birth of the loan remains the same throughout repayment, whatever happens to market rates in the meantime. With an adjustable-rate loan, the interest on your repayment varies with market rates – it might go up or down from month to month, a little or a lot. Given the nature of long-term loans, some lenders are more likely to push this option than they are with shorter term.

Why Look For Business Loans Online?

No one is suggesting that you only consider online options for your small business loans (or any other sort of loans), but part of making responsible business financing choices is being aware of and weighing your options. In fact, I’d suggest starting with local options – the bank down the street, the credit union you belong to through your spouse’s work, etc. Set up an appointment to talk about your business and their loan options. See what they offer you.
Then explore your online options as well. As I said before, this is the 21st century, and while some things about entrepreneurship have remained the same, other realities are evolving because of technology, changing political dynamics, and the evolution of the modern economy. If you haven’t tried online lenders before, let me suggest a few reasons maybe you should.

Flexible Terms

Online lenders aren’t bound by the same traditions or conservative lending culture typical of most banks and even many credit unions. Because they exist primarily as lenders (rather than as institutions geared towards savings or investment management or large safes full of bullion), they very much want to lend you funding – small business loans, personal loans, auto loans, mortgage loans, etc. It’s literally what they do. Some will allow longer terms on smaller loan amounts, or creative payback schedules based on the specifics of your business. Others will work with you on revolving credit or new equipment loans so that the terms of the loan accommodate your unique business realities. Online lenders have the freedom to be more creative when it comes to specific terms because lending isn’t peripheral to their primary function; it is their primary function.

Reasonable Risk.

You’re in business (or trying to be), so you understand how business works. Online lenders only make money when they loan money and that money eventually gets paid back with reasonable interest. While your credit report and other indications of your ability to repay certainly matter, online lenders have different thresholds for determining acceptable risk. In other words, they’re more likely to “take a chance” on a determined young entrepreneur or a hard-working small businessman trying to move her company to the next level.

Convenience

Let’s be honest – no matter where they’re located or how comfy the chairs, driving from institution to institution, signing in on that little e-pad at the door, then waiting to talk to a guy in a suit who seems to be typing in way more information than you’re actually sharing, is seriously time-consuming when you’re trying to also run a small business and have a life at the same time. Working with online lenders allows you to do everything from the comfort of your office or home and access multiple options all in one sitting. While specifics vary, online lenders often require less paper documentation, so while you’ll absolutely want to have all the same information prepared, there’s less time devoted to photocopying or filing hard copies in manila folders (and zero stamping on things with big rubber ink stampers).

Final thoughts

That’s where we come in. At Loanry, we gather some basic information from you, then connect you with one or more online lenders we believe to be a good match for your needs. There are no fees, no surprises, no point in the process we suddenly pressure you to buy something or upgrade to our “pro” version (it’s all the “pro” version and the “pro” version is free). Connecting lenders and borrowers is what we do – and, at the risk of sounding rather proud of our track record, we do a pretty good job of it.

Let us know when you’re ready, or if you have any questions. We’re always here.

Business Loan Basics Spelled Out: Loans 101

In many ways, business loans are very similar to any other sort of loan you might consider. You evaluate your needs, prepare your financial information, and shop for a lender willing to offer terms you consider acceptable. As with any other loan, the better your credit history, the better the terms you’re likely to be offered.

How Do Business Loans Work?

That doesn’t mean, however, that newer or smaller businesses can’t secure reasonable loans to meet their needs. Nor does bad credit in your past automatically disqualify you for all loans. Sometimes, the unique nature of a growing business actually makes it easier to find attractive interest rates or willing lenders. It all comes down to doing your research ahead of time and opening yourself to a variety of business loan options based on your particular business needs.

Let’s look at some business loan basics and talk about the realities of business loan shopping.

Are Business Loans A Good Idea?

Some of them are. Others might be a horrible idea – at least right now. Perhaps a better question would be,

“Is a business loan a good idea for me right now?”

Have you outgrown your current space? Do you consistently have more orders than you can fill in a reasonable time? Are there opportunities you should be seizing but which require capital up front beyond what you can immediately access? Be honest with yourself – the line between taking initiative and taking a bath can be a bit blurry in the heat of the moment. If your eyes are open, however, growth is often a very good reason for the right business loan.

Do you need new equipment? Is it time to update technology or add other hardware in order to maintain or increase productivity? It’s usually a bad idea to buy new toys just because they’re shiny and no one else has them yet, but if your business relies on machinery or computing power to succeed, it’s an even worse idea to let your workplace become obsolete.

Is your business seasonal? Can you say with great certainty that the rush is coming and you need to be prepared with the right items or ready to offer the right services when it does? There are plenty of lenders ready to work with you in these sorts of circumstances. It’s a great problem to have!

Do you need to establish credit? Even if you could probably “make do” with less for now, sometimes a few small loans you pay back in a timely manner lay the groundwork for larger loans down the road when you really need them. You shouldn’t borrow just to borrow, but when an opportunity arises to build your business and your credit at the same time, it’s certainly worth looking at your options.

If you decide to shop business loans now in order to build business credit, consider starting small. Explore your options through several business loan companies and choose the one which seems right for you. Then, if you’re happy with them (and if they’re happy with you because you make your payments in a timely manner like the awesome business owner you are), you have a relationship established for next time.

On the other hand, taking out loans to make ends meet month after month is not a sound business strategy. If anything, it usually delays the inevitable while making things worse. Chasing the “next big thing” or over-extending yourself or your business for a “sure thing” that your most trusted friends and colleagues warn you not to trust might be a once-in-a-lifetime stroke of entrepreneurial genius. It’s far more likely, however, that it’s simply what it appears to be – a really bad idea of the sort which are usually available if we look for them.

In short, if we’re talking business loan basics, you should start your  business loan search if it will help your business prosper. You should generally not shop business loans as an act of desperation to keep the doors open. Hard truths from hard knocks, my friend.

What Kind of Business Loans Are There?

There are as many varieties of business loans as there are businesses, which is great news for you. Here are some business loan basics about some of the more common types you should recognize as you begin your business loan shopping:

Installment Loans

These come in many varieties under several different names, but essentially these are the most straightforward sorts of loans the average person imagines when first confronting the realities of business financing. Once approved for a specific amount, usually specified for a specific business purpose, you receive the full amount from your choice of business loan companies. Payment amounts and dates are established in advance and interest calculated over the life of the loan.

Installment loans are easy to understand and expectations are clear for both parties. Usually there’s no penalty for early payment, so you can repay part or all of the loan early without penalty. Interest rates vary, but tend to be more favorable the shorter the payback period – and of course you save even more on interest if you’re able to pay ahead of schedule.

Line-of-Credit Loans

A line-of-credit loan is one of the most common and most useful for small business owners. It can be a short-term or long-term business loan  (depending on if you keep paying it off and reusing it) that allows you to access additional funds as needed up to a predetermined limit. You only pay interest on the amount you use according to terms specified beforehand. (Usually this means monthly payments until paid in full.) At the end of the contract year, the line-of-credit is re-evaluated and – if all has gone well – usually renewed for another year.

Interest rates tend to be modest for these sorts of loans, as they’re relatively low-risk for lenders. If you’re just starting out, or looking to establish or rebuild credit for your business, a small line-of-credit loan might be a great place to start.

Understanding the Different Types of Business Loans

Revolving Credit

These are similar to line-of-credit loans, but are more easily compared to credit cards. Your business may access funds as needed up to a predetermined limit, but as you pay back borrowed funds, your available balance essentially “refills”. Interest rates tend to be a bit higher than with line-of-credit loans, but revolving credit provides greater flexibility over time.

Equipment Loans

This is a specific type of short-term business loan. Equipment loans are similar to installment loans or term loans. As the name suggests, however, they’re intended to be used primarily to purchase essential equipment for your business. If you’re still establishing your business credit, these can be a useful type of loan because the equipment you purchase is natural collateral.

I know I don’t need to say it, but entrepreneurs are risk-takers by nature and sometimes our temptations are different than other folk’s. If you take out an equipment loan, you should use it to buy the equipment. Let’s stick to business loan basics and use the money for its intended purpose, yes?

Commercial Real Estate Loans

These are the same basic thing as an equipment loan, only they’re not used for new equipment. You’ll never guess what they are used for. What’s that? You guessed? Hmph. Moving on…

One advantage to commercial real estate loans is that lenders are sometimes more willing to work with new businesses and may even offer better rates. You’re unlikely to sneak off with three acres and a giant metal building in the middle of the night, making this a better risk for business loan companies.

Interim Loans

These are another form of short-term business loan. Typically, an interim loan is used to pay off suppliers or contractors and then repaid once funds become available as a result.

Other Loan Terminology

While they’re not necessarily distinct types of loans, here are some terms with which you should be familiar as you begin shopping for a business loan:

SBA Loans

An SBA loan is any type of borrowing backed up by the Small Business Administration. They’re harder to qualify for than loans from direct lenders, but the terms and interest rates are generally good. Many consider starting with the SBA to be an essential (and obvious) part of business loan basics. You’ve got nothing to lose and you don’t want to have to explain why you didn’t try, right?

Balloon Loans

Picture a large cartoon thermometer laying horizontal instead of vertical. (Put the bubble-butt part to the right.) When you borrow money with a balloon loan, you pay mostly or only on the interest during the life of the loan. That’s the long thin part. Instead of temperature, the numbers are the amounts you’re paying according to whatever schedule you worked out with your lender. At the end of the loan, you pay back the principal in full – as in, one lump sum. That’s the bubble part.

These only make sense if your business expects substantial revenue at some specific point in the future. They offer great leeway in delaying that lump-sum payment at the end. On the other hand, you’re staking a great deal on the arrival of plenty of income before the “balloon payment” is due. Lenders may require some sort of verification as to what that surge of resources might look like before advancing credit for this one.

Secured vs. Unsecured Loans

If your business is relatively new or your credit less than stellar, lenders may require some form of collateral before advancing you a loan. That collateral “secures” the loan. If for some reason you’re unable to make your payments, the lender may at some point take control of your collateral in order to regain some or all of the balance. Here’s a business loan basics tip: make your payments so you don’t lose your collateral.

Once established with a specific lender, it’s much easier to qualify without collateral – an “unsecured” loan. Your reputation and history with the lender are the guarantee, not your house, car, or children.

There are numerous other varieties which your preferred lender will no doubt be happy to discuss with you.

How Do I Qualify For A Business Loan?

The details of qualifying for a business loan will vary widely from lender to lender, but there is one qualification almost every business owner who has successfully borrowed money has in common. They’ve asked to borrow money. (Hey, it’s called “Business Loan Basics” for a reason, kids.)

There are several factors which will determine how easy it will be to get a business loan and which may shape what type of loan you can get at what terms. But whatever your circumstances in relation to each of these factors, none disqualify you from asking. That said, here are the most common factors lenders will consider:

  • Your personal credit history and credit score
  • Your business’s debt-to-income ratio (income vs. “out-go”). This includes current business debt.
  • How long you’ve been in business (2+ years is ideal)
  • The type of business you’re in. (Lenders like industries they understand or which they’ve found to be reliably profitable in the past.)
  • Collateral or other risk-minimizers

Remember: deciding in advance you don’t qualify and giving up before you’ve started is the only real way to be certain you won’t be getting that loan. Business Loan Basics: Loans 101 – Apply. For. The. Loan.

What Documents Are Required For A Business Loan

This one also varies with the type of lender and the type of  loan. Generally speaking, traditional banks will require more documentation than online lenders, but both want to make sure there’s a reasonable chance you’ll be able to repay the loan as scheduled. In many ways, this part of business loan basics is the same as it would be for any sort of loan. Here are a few things you should have ready before you apply:

Name(s) and Address(es)

This one seems obvious, but if you or your business have had multiple addresses over the past decade, it’s a good idea to go ahead and organize those for ready reference. I’m often shocked (and a little embarrassed) at how quickly I forget past ZIP codes or even what year I lived where. Save yourself some stress and record this info somewhere now so that you can easily access it as needed.

You should also be prepared with identification for both yourself and your business. In the same way we’re often asked to present a driver’s license or other ID to confirm we’re who we think we are, lenders usually want to confirm that your business is documented as well. This can be done through your Articles of Incorporation, franchise agreements, or contracts with suppliers or others with whom you do business.

Background Info

How long has your business been in operation? Unless you’re well-established and can document several profitable years, what’s your background and what are your qualifications? In short, why should the lender think you can make this work?

Your Personal Credit Report

Unless you’re a well-established business, this will be essential. Bad credit is not necessarily a deal-breaker, but avoid surprises. Check your credit report and know your credit score going in; don’t wait to be asked about it by a potential lender.

At the same time, don’t let bad credit in the past prevent you from moving forward in the present. Spend a little extra time on your business plan (we’ll look at that in a moment) and look at other ways you might present yourself in the best possible light, then go for it. And remember, there’s no need to fudge the truth here – you and your business acumen are good enough as you are. Your ideas are strong. You just need a little working capital to make it all happen. Be your best you, but still you.

Your Business Plan

You should have one of these anyway, but if not, don’t panic. This is the perfect time to create one. A good business plan isn’t just part of business loan basics, it’s part of business basics, period.

You’ll want to research this one a bit, but in general most lenders will be looking for

  • The Executive Summary. This is your business plan in the most concise and clear terms. Who are you, where are you, what do you do, and how do you plan on making a reasonable profit by doing it?
  • The Company Description. A more technical breakdown of your logistics and operations. How is your organization structured? What do you produce or provide? What can you document in terms of growth or profits, current or anticipated?
  • Your Products and Services. This zooms in a bit more on what you actual make or do and why you think customers will pay you to make or do it.
  • Organization and Management Team. Who’s responsible for what? What are their qualifications or experiences? What’s the leadership structure? (In other words, who answers to who?
  • Market Research. Now that we know what you make or do, what makes you believe people will pay you to make or do it? Don’t count on anecdotes or your personal impressions; it’s time to bust out some actual charts, tables, and projections. These are even better if they’re based on something legit.
  • Strategy and Implementation. How are you going to make it all happen? This includes location, marketing, pricing, hiring, etc. There aren’t always right or wrong answers, but you should sound like you’ve researched a bit and have a plan. Ideally, you actually do.
  • Financial Projections. This should start with any existing financial statistics. What’s your forecast for the upcoming six months? Twelve months? Thirty-six months? On what are these projections based?

This is not the most fun or exciting part of owning your own business, but it’s one of the most important whether you business loan shop or not. Entrepreneurs are valuable because we reach and dream and risk; that makes it all the more important than we discipline ourselves to remain anchored in reason and reality. A detailed business plan is one critical way to do that.

Other Financial Paperwork for Your Business

If you’re not just starting up, your business has a credit report separate from your personal credit report. You can check this through various online services such as Experian or FICO.

Some lenders will also ask questions about or require copies of your personal and business tax returns for the previous three years. They may ask for documentation supporting your financial projections or going into more detail about the information in your business plan. They may even request your bank statements. The details vary from lender to lender, but it wouldn’t hurt to have this information available and organized ahead of time.

Have I mentioned that being prepared and organized ahead of time are absolute business loan basics? I have? OK, just checking. Because they are.

What Can A Business Loan Be Used For?

There are no set rules on how you use your loan, although some lenders may require you to share this information as part of their business loan application process. Some types of loans, as we covered above, are intended for specific purposes, and you shouldn’t be surprised if the lender requires some evidence they’ve been used appropriately.

Generally, though, business loans can be used for whatever your business requires.

  • Expansion – Maybe you need more room or storage. That’s a good problem to have.
  • Upgrades – It might be time for better equipment or new technology. You might even replace that dot matrix printer that requires that special paper with the tear-off strips down the side. *shudder*
  • Inventory – You can’t sell what you don’t have, and you can’t use what you haven’t ordered. This is classic “you gotta spend money to make money” territory.
  • Salaries or Bonuses – Human resources are often the largest expense of any business, especially when it’s growing. Be careful with this one, though. You should only borrow money to pay people if you have a clear plan forward. If you’re borrowing to meet payroll every few months, something is seriously wrong.
  • Special Events – Congratulations on a great year! Great work, team! Drinks for everybody! Again, it’s up to you how you spend your borrowed funds, but only do this if you know the funds are coming soon and reliably. It’s only a great party if it doesn’t bankrupt the company, kids.

Small Business Loan Shopping

Now that you know your business loan basics and have an idea of what sorts of loans are out there, let’s talk about taking action, shall we?

How Can I Get A First-Time Business Loan?

Start by revisiting the requirements above. No matter where you’re seeking your startup business loan, you should begin the process by gathering and organizing your information. Update your business plan and revisit your plans for using a new loan effectively. Take a moment and talk yourself through anything which might come up. There’s simply no substitute for being prepared.

It might not hurt to remind yourself of why you’re doing this in the first place. You’re an entrepreneur. You offer products and services no one else does, or at least offer them differently or better. Confidence matters. It’s nice when it overflows without effort, but sometimes we have to choose it and embrace it for a while until the flow kicks in again. Don’t get cocky, of course – but believe in what you’re doing.

Otherwise, why should anyone else?

Where To Business Loan Shop

It never hurts to start with traditional sources – local banks, credit unions, etc. In the 21st century, however, more and more people are working with online lenders. The best approach is to explore your options. Visit some brick-and-mortar financial institutions in your area, then spend some time looking into online alternatives.

As you may have suspected by now, we can help you with that part. Loanry simply gathers some guiding business loan finder information from you, then connects you with lenders who work with you to discuss business loan options.

Please understand that we’re not selling anything. There’s no surprise on Step 17 asking for your credit card and no ‘free trial period’ that suddenly turns expensive once you’ve forgotten all about it in a few months. In short, we’re not asking for anything from you on this one. We connect potential customers with experienced lenders – the rest is between you and them.

Obviously we want for you end up happy and tell everyone about it. Not to brag, but we’re pretty good at this sort of thing, so that happens a lot. We’re all about business loan basics, auto loan basics, medical loan basics, and a variety of other services as well. Because in the end, it’s not just about the money. It’s not even just about the business. It’s about helping people get from where they are to where they believe they can be.