There are thousands of small businesses out there that can benefit substantially from receiving a loan.
Whether it?s for expansion purposes or to hold over a company?s expenses for a certain period of time, if your small business is in need of a loan, there are usually plenty of options.
Still, navigating all the details relating to loans can be difficult, so here are some basic things to keep in mind before going forward.
What Kinds of Loans Are Available?
Depending on your needs, there are going to be a couple of options available to you.
The most basic types of loans you can get are short-term loans, which involve receiving sums of money less than $500,000 which are supposed to be paid back over a couple of years (usually up to 10) with interest. Personal business loans are a similar type of loan, but typically involve borrowing a much lower amount.
Government loans are another possibility; one that is often highly coveted. The Small Business Administration (SBA) offers smaller companies loans up to several million dollars for pretty much any project, provided that a business plan is perceived as viable.
A less common, but still substantial type of loan is an equipment financing loan. This is when a lender offers to pay for a business? day-to-day equipment, such as furniture or electronics.
Where Can You Get a Loan?
While there is a multitude of lenders out there, it?s most common for companies to get their loans from banks. Banks offer a significant resource pool that small businesses can access which is difficult to rival.
However, the stringent requirements banks place upon their clientele have made it hard to get a loan for many. That?s why there has been a rise in the number of financial service companies that offer small businesses loans. They?re usually much easier to get a loan from, although they offer much lower loan amounts than banks.
How Do Loans Typically Work?
Each loan is different, but it?s very common for lenders to require borrowers to put up collateral for a loan. This means a business will have to sacrifice a valuable asset in the event they default.
Beyond collateral though, it?s also quite common for lenders to require assets, usually equipment, that has been bought with loan money to be insured as its loss could potentially jeopardize loan repayment.
Small Business loans involve a borrower having to pay off a lender over a set period of time, with a predetermined repayment schedule being put in place. In accordance with this schedule, a borrower will pay back a portion of the money owed, plus interest and any fees that might be accrued.
How much an individual payment is and how much interest is going to be paid is determined by a variety of factors, such as what the loan is being used for, perceived risk, and the relationship between a borrower and lender. In some cases, a variable interest rate might be in order, which is an interest rate that fluctuates depending on the market value of an asset that a loan is used to purchase.
For the sake of comparison, it?s common for lenders to display their loans? annual percentage rate (APR), which shows how much interest a loan amount will accumulate over the course of a year.
Receiving Some Assistance
Trying to figure out everything relating to small business loans can be an extreme hassle; there are just so many minute details to keep track of.
Fortunately, there are companies that offer online lending solutions in the form of software.
Numerous programs exist that can keep track of incredibly important loan metrics, transaction lists, and automation options.
Is a Small Business Loan a Good Choice?
Loans are the backbone of pretty much all forms of small business expansion. It?s difficult to properly build a brand or infrastructure without the necessary resources and getting a loan is not only a relatively linear way of accomplishing this, but sometimes it?s the only way.
That being said, whether or not a loan is in order will still be heavily determined by individual circumstances.
