If you’re a small business owner, then you know how essential it is to have the funding you need to grow and sustain your business. Today we’re going to provide a guide on how small business loans work and how to obtain funding to accelerate your business.
How to Obtain a Small Business Loan
Obtaining a small business loan can feel intimidating to some owners. But the first step is arming yourself with the right information. To help you in your financial journey, we’re going to break down what a small business loan is, the types of small business loans available, and what you can do to secure a small business loan for your company.
What is a Small Business Loan?
Simply put, a small business loan is a type of financing for small business owners by different lenders. Essentially, these small business loans were designed to help owners meet their goals.
4 Types of Small Business Loans
If you’re interested in a small business loan, it’s important to note that there are different types of loans, all with different requirements and benefits. Understanding what these loans are will help you make a more informed decision for your business. With that said, we’re going to share 4 types of small business loans to consider.
Small Business Line of Credit
Think of a small business line of credit as a credit card. It enables business owners to borrow up to a certain limit and only pay interest on the amount of money borrowed.
A small business line of credit can be useful for owners as it allows them to continuously draw funds and repay as many times as you’d like as long as you don’t go over your limit.
Working Capital Loans
Working capital loans are used to fund the everyday operations of your business. This might include things like rent, payroll, and debt payments.
With that said, these loans generally have shorter terms and lower amounts compared to other small business loan options.
Small Business Term Loans
A small business term loan means that the business owner will receive a large lump sum of capital that will need to be paid back at a fixed interest rate with regular repayment terms.
With a small business term loan, you can expect it to be repaid in five years. It’s also important to note that these loans usually follow an amortization schedule. This means that most of your payments will go towards your interest in the early periods of the loan.
SBA Small Business Loans
An SBA small business loan is one that the U.S. Small Business Administration guarantees. This means that if you cannot make your payments to your lender, the SBA will pay out the guaranteed amount.
With that said, the SBA guarantees 85% of loans that are under $150,000 and 75% of loans that are more than that amount.
How to Get a Small Business Loan
If you’re a business owner and want to move forward with a small business loan, you can get it through institutions such as direct online lenders and large commercial and community banks.
To increase your approval odds, be sure to improve your personal and business credit scores to make your application more attractive to lenders. Additionally, it’s important to know the requirements of the type of loan that you’re applying for.
Lenders will also want to see a thorough business plan that outlines information such as the business description, market analysis, sales and marketing strategy, and financial plan projections.