Finance — 2 years ago

Small Business Loans Explained!

by Keren P.

Small Business Loans, What is a Small Business Loan

What is a Small Business Loan?

That competition is ruling the roost in the business world is a known fact. While big organizations are likely to have good financial muscle, small companies are struggling due to the paucity of funds. Especially, when they need urgent funds for running their operations and when they do not have the sources from where they can raise money, their struggles become all the more pronounced. It is in this context they are advised to go for a small business loan.

You may wonder what this small business loan is all about. It is a loan that is made available to businesses of smaller size for getting their purposes fulfilled. Of course, the purposes can be of a varied nature. The lenders of these loans do not generally put forth major restrictions for making money available to these small companies. These loans may come with a few other incentives as well and so, the expenses of the business that avail of them will get minimized.

Small Business Loans

Why are you, a small business owner, advised to opt for a small business loan?

You may want to expand by procuring certain equipment, may wish to strengthen your marketing efforts, or may want money for paying salaries to your employees. When you are not getting the funds you require from your expected sources; you can go for a small business loan. You need not to think that this is a wrong strategy. This loan will help you to tide over such situations.

Remember that this loan is very much different from the loans of other types. Hence, you are advised to know fully about the loan you intend to avail before applying for it.

Who are lenders of such small business loans?

Banks, online lenders, and of course, credit unions are the ones that lend these small business loans. Each of these lenders may have their interest rates, and therefore, it is imperative that you do proper research before applying. You should carefully study their repayment terms as well because there may be differences in these terms also from one lender to another.

Do you need help?

If you want help for doing your research about these loans, you can use the resources that are made available by the Small Business Administration. Remember that the SBA does not lend money but the body helps businesses in getting the funds they require. If you are a start-up entrepreneur or if you cannot give any collateral security for the loan you intend to avail, you can easily secure a loan that is SBA-guaranteed. Traditional loans are hard to come by if you are a new start-up owner.

Business Loans

How to satisfy the lenders and get the loan you require?

You have to provide the details of your experience in the field. You should tell the lender how and for what purpose you will be spending the loan amount. Further, your business plan should satisfy the lender also. The business plan should consist of the goals of your business and the details of how you intend to achieve them. Your action plan should be supported by projections of cash-flow, fund-flow, and profits. Of course, the lender may expect you to provide him with some of your details such as reports of your credit status, tax returns for the previous years, etc.

Interest rates and repayment terms

You can get favorable interest rates and repayment terms if you put up appropriate collateral. Otherwise, the interest rates may be higher, and repayment terms may be a little harsher. You are advised to read between the lines and understand the terms of the loans clearly before you apply for them.

If you do not put up suitable collateral, you may have to give a personal guarantee. If you default on the repayments, the lenders will have a choice to attach your assets instead of the loan. The lender may file a suit in a civil court as well. The best way is not to avail of such a loan. Even if you avail it, you should ensure to repay the loan on time so you can avoid embarrassments.


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