If you are a small business owner, then you know that the cost of doing business can be high. This is why many entrepreneurs look for small business loans to help them with their cash flow and other expenses. There are various types of loans available for businesses, but not all loans have the same requirements or benefits. In this article, we will provide a list of the types of loans for small businesses and requirements to secure a loan for your business.
Types of Loans Available for Small Business Owners:
–SBA loans – these are a good option if you want to borrow a big chunk of money. They can be used for pretty much anything, but they also come with the requirement that your business has been around for at least two years or more. If you plan on starting up your own company soon and need some startup capital, then this might not be the best choice due to how long it takes to get approved. However, there are no income requirements like other types of small business loans! You will need an SBA loan specialist to apply though – visit SBA.gov to get started.
–Peer-to peer lending – if you do not qualify for traditional bank financing options because your business is new, you have bad credit, or the amount you need to borrow is too small, then peer-to-peer lending could be a good option for you. With this type of loan, you will borrow money from an individual rather than a bank. The downside is that the interest rates tend to be higher and there are origination fees involved.
–Micro-loans – these loans are typically given to businesses that have been in operation for less than two years and have less than $100,000 in annual revenue. This can be a great option if you do not meet the requirements for other types of small business loans or if your business is in its early stages and needs some capital grow. You can get a micro-loan from a variety of different sources, such as credit unions, community banks, and online lenders.
–Term loans – these are the most common type of small business loan and can be used for anything from inventory to marketing expenses. The amount you can borrow usually depends on your annual revenue or credit score. You will need to have a good credit history in order to qualify for this type of loan.
–Equipment financing – if you need to purchase new equipment for your business, then you might want to consider getting an equipment loan. This type of financing is specifically designed for businesses that need to buy big-ticket items like machinery, vehicles, or office furniture.
Requirements for Small Business Loans:
Now that we have covered the various types of small business loans that are available, let’s go into some more detail about the requirements needed to get a loan.
–Personal credit score: most lenders will require you have a good personal credit score in order to qualify for any type of financing option. If your score is below 620, it might be difficult to secure financing from a traditional lender.
–Business revenue and cash flow: regardless of what kind of lending option you choose, having sufficient cash flow and steady revenue coming in every month is essential if you want to successfully repay your debt! You can’t borrow money unless there is money coming back into your company at least equal (or greater) than the amount borrowed – this means that borrowing $20K for your business is not a wise decision if you only have $15K coming in each month.
–Business history: most lenders will want to see at least two years of business history before considering a loan application. This shows that your company is stable and has been able to make it through some tough times.
–Proof of collateral: some type of collateral is often required when taking out a small business loan, especially with loans for a startup without business history, shorter terms loans or those under $100,000. Collateral can be anything from real estate to equipment to accounts receivable.
If you are interested in getting a small business loan, the best thing to do is research all of your options! The internet is of great resources, such as this one, to help you find the right loan for your business.