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Things That You Need to Know About Small Business Loans

10 July 2017 No Comment

Although small businesses drive the economy, many entrepreneurs find the lending process exasperating. Too often, growing businesses are shut out when they try to obtain loans for their small businesses. The SBA usually guarantees business loans through banks and you can borrow up to 5 million dollars.

The interest rate that you will receive on bank loans is lower than that of online loans. If you fail to qualify for a bank business loan, you should take out an online loan. It is ideal for businesses that need quick funding.

Here are some things that you should consider when applying for a business loan:

Put yourself in the Lender’s Shoes

Why should a lender give you money? You should treat the loan application process as you would a job application. However, instead of focusing on your resume, you need to pay attention to your loan application.

This means that you need to comprehend your financial situation then decide whether you should use collateral or not. If you choose to put your house down as collateral, you must really believe in your business. Credit quality and cash flow are other things that you need to consider.

Figure out How Much You Need

As a business owner, you should not seek more money than you need because you still have to pay it back. Moreover, seeking higher loans increases your chances of being rejected.

Learn from Your Mistakes

If a certain lender rejects your loan application, you need to ask why. That way, when you approach the next lender, you will address the problem and increase your chances of qualifying for a loan.

Use Receivables as Collateral

If your business-to-business credit is poor and you have receivables, you should use them as collateral. Internet lenders and other alternative lenders usually charge higher rates of interest but their qualification requirements are less strict. This means that people with poor credit can qualify for the loans.

Consider Working with SBA-backed Lenders  

Working with an SBA-backed lender should be your first consideration. You should not assume that you are ineligible immediately. You need to apply to see whether you qualify for the loan.

SBA loans usually have low rates of interest and good repayment terms. Moreover, just because one SBA lender turned you down does not mean that all of them will.

Know What You are Getting Into

You need to learn the annual percentage rate of the loan for which you are applying. What will your fees be? You need to know this and understand the prepayment penalties. Being an informed shopper will help you to find the best loan for your business needs.

Borrow from Online Lenders if You Have Bad Credit

As mentioned earlier, most online lenders will provide funding to people with bad credit too. However, you should be careful because they charge high rates of interest and have poor transparency. If you choose this route, you should be able to pay the money back in time to avoid extra charges.

Pros and Cons of Small Business Loans


–          SBA loans can restructure your debt better if you have cash flow issues by providing longer loan maturity terms and needing lower monthly payments.

–          SBA loans do not have balloon payments

–          They are the best loans for new entrepreneurs who no business credit


–          SBA loans have higher rates of interest than traditional bank loans.

–          They need more paperwork and more time investment in the approval process

Understanding small business loans is important if you want to choose the best loan. Pick a loan with good rates.

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