How To Access Small Business Loans In 2023
Would you like to discover how to access small business loans to scale your business? Continue reading.
The most successful businesses you see today did not find it easy in their early stage, some of those successful companies took out loans at one stage or the other. Getting a loan to start a business or to make your business stand isn’t such a bad thing.
Ambition and grit are quite essential for your business, but that doesn’t guarantee the flow of cash your business may need, you should consider some initial finances to make your business stand its ground, this is where the business loan comes in.
A business loan is a loan which is specifically intended for the growth of the business, these loans are paid back within a stipulated period with added interest.
Business loans are the most common type of loan available to business owners looking to start a business or support their business needs. However, the decision in applying for a business loan shouldn’t be taken lightly.
This article explains in detail all about business loans, and it will help you decide whether taking a business loan will be good for you and your business.
Why Should I Get A Business Loan?
Sometimes you need more than hardwork and overtime to achieve business goals. The most essential thing that will make your business grow is money, without money, you’ll feel stuck one way or the other. Business loans are the most common ways business owners can fund their operations.
According to Small Business Administration (SBA) report, over 61,000 loans were given out to business owners in the 2021 fiscal year. Although, this might seem a bit off the chart because many businesses crumbled during the covid 19 pandemic and needed cash to get back on their feet.
Still not sure whether to get a business loan? Here are some signs you should watch out for before getting one;
Expensive Cost of Equipment: These equipment are there to make productivity easier for us, most of this equipment is very expensive and as a small business, you might not be able to afford them on your own.
Poor Cash Flow: As a small business, you might not have enough capital to pay for inventory or basic operating expenses. Business loans might be your only option.
Hiring: When starting a new business, you need all hands on deck, and you can make this happen with a strong team, just that they are quite expensive to hire. A loan can help you hire the right people to help you grow your business.
Advertising Fees: Making your business visible to potential customers is quite essential, this can be achieved by running advertisements, and the cost of advertisements can be expensive. You’ll need a bank credit card or a business loan to pay your bills.
Emergency Funds: Life is full of unforeseen circumstances, such as natural disasters and failure of equipment, business loans may be your only option to keep your business running at such a critical time.
Here Are The Steps On How To Access Small Business Loans
- Calculate The Total Amount Needed
Before you consider applying for a business loan, use a loan calculator to estimate your total loan amount needed and the interest rate you’ll pay back within the said period. To know the exact amount of funding you need, you’ll have to identify what you need a business loan for.
According to the Federal Reserve Bank of New York, there are three core reasons US business owners take loans:
- Business expansion: According to statistics, 65% of business owners take loans to expand their business
- Operating Expenses: According to statistics, 45% of business owners take loans to keep their operations going
- Loan Refinancing: According to statistics, 45% of business owners take loans for refinancing purposes.
- Figure Out if You Quality For The Loan
Every loan comes with certain borrowers requirements, for example; the SBA loan has the following eligibility requirements for applicants:
- Run business at a profit
- Conduct business in the U.S or its territories
- Have some ownership/equity in the business
- Use other funding sources (have capital) before getting a loan
It is important to note that the SBA does not give out loans, they just back loans made by lenders. And those lenders tend to have their own borrowers’ requirements, for example, some lenders will require you to have a credit score of 640 and above to be eligible.
- Write A Business Plan
Most business loan lenders do not process loan applications unless it is accompanied by a good business plan. Before most lenders give you a loan, they’d like to know if your business idea is commercially viable.
However, in recent years, some online lenders have now processed loans without business plans. To an extent, some people might think that lenders have eliminated the business plan application process.
That said, many lenders that do not ask for business plans for their application process offer a short time loan with higher APRs. Higher APRs simply mean higher interest to be paid in a short period.
- Consider Repayment Terms
The next step is deciding how you intend to pay back the loan, be realistic in this decision and consider external factors also. Review yourself and decide on the amount you can repay every month.
Although a lender will determine your monthly payment, this payment is based on several factors, such as;
- Type of loan
- Profitability of business
- Type of business and how long you’ve operated
- Business owners income
- Credit history
You should note that your credit history affects your interest rate in both positive and negative ways, if you have a very good credit history, you’ll most likely qualify for lower interest rate loans.
However, a bad credit history will only get you a high-interest rate loan, in some cases, you might even get disqualified entirely.
- Talk to A Financial Adviser
Financial advisers have insights into various financial institutions that offer small business loans. A financial adviser can help you draft a plan on how to repay your loan faster and even pick the best lender with a lesser interest rate for you.
- Decide on The Type of Loan
There are several types of business loans, including; Microloans, Term-loans, Small Business Administration (SBA) loans, Financing invoices, Financing equipment and Business lines of credit. The repayment periods of these loans span from a few months to up to 10 years.
Decide on the type of loan you’d like to go for, depending on the repayment period that best suits you.
- Apply for The Loan
Once you’ve done all your research and have decided on the type of loan you want to go for, it’s time to apply. You might decide to use traditional lenders to apply if you have good credit scores.
If you do not meet the requirements of traditional lenders, you might have to search online for less conventional loan options.
Applying for a business loan takes time irrespective of the type of loan you’re going for, above are the several steps you should take before applying for a business loan.
Once you submit your application, every lender has their application process and instructions for turning in an application. Interviews are mostly part of the process, which will require them to set a meeting or do the interview over the phone.
That’s how to access small business loans easily.
Was this information useful to you? Read similar posts recommended for you below.