This Fgeneral inquiry shows that about 44% of small business owners borrowed money to cover business expenses. Most of these owners choose to borrow money to buy equipment, finance projects and other activities for the growth of their business. So there is no shame in getting a loan or other financing options for your business.
Financing options you can consider
When it comes to small business financing, there are several to choose from. You can get financing from physical banks or online lenders, such as Creditninja.com. Here are some of those options:
Traditional bank loans
A classic bank loan is a term loan that grants you a lump sum of money. This type of loan usually does not require any collateral and the repayment term is fixed.
The interest of a classic bank loan is fixed at the time of the agreement. The amount of monthly payments for conventional bank loans is not subject to any modification. This means that you don’t have to worry about an increase in the repayment amount in the long run.
Short term loan
Short term loans are similar to traditional bank loans. However, they tend to provide you with smaller amounts. Most of the time, the repayment term is 12 to 84 months. Short term loans can be fixed or variable in terms of interest rates.
When we say fixed, it means that the interest rates are not subject to change until you pay off the loan in full. On the other hand, variable interest rates mean that the interest on your loan can change over the long term, subject to a financial index determined by the lender.
This type of financing can give you the best variety of financing options. Lenders often require you to put your assets as collateral. In addition, interest rates are generally variable.
Line of credit lenders generally offer higher interest rates for borrowers who give no collateral. Most of the time, the smaller your loan amount, the higher your interest rate will be. A line of credit is ideal for small business owners who need cash immediately to cover short-term expenses like payroll or inventory.
Business credit cards
Having a business card is a must. In fact, most small business owners have multiple credit cards. This is because business credit cards are easier to obtain than loans.
Business credit card reports give you easy tracking of your spending. It can also help you compile and manage any information you might need on your tax return. Business credit cards are ideal for those who need to manage their business cash flow.
Small Business Administration Loans (SBA)
SBA loans are provided by the Small Business Administration. The government backs a substantial portion of any SBA loan you take out. Although this program offers many options, you must first apply to see if you qualify.
Application tips for all small business financing options
Here are some tips you can consider before applying for a finance option:
Solidify your business plan
Make sure that you really need the funds that you want to borrow. Write a solid business plan is a good start. This can help you get an overview of where your business is going with the money you’re trying to borrow.
Assess the financial situation of your business
Lenders have their ways of making sure that you can afford the loan. They could consider the following:
Chances are, lenders will review your business credit history and your personal credit history. It will help you if you ask for both your business and personal credit report before you apply for a loan. This way you have enough time to correct any mistakes and improve your creditworthiness.
Lenders may want to assess whether you have enough cash to repay the loan. However, if your small business is new, it usually looks at your experience instead.
Some lenders may require you to post collateral. This will serve as collateral to the lender if you do not repay the loan. However, if you don’t have enough assets to act as collateral, you may want to have a co-signer do it for you.
If you don’t have enough experience in the small business world yet, lenders might consider your work history and experience. This is to help them assess whether you can truly manage your small business and repay the loan amount in full.
To wrap it all up
When it comes to financing your small business, there is no need to worry. There are many options to choose from. However, keep in mind the importance of taking control when borrowing money, no matter the amount. Also, don’t forget to make payments on time and in full. That way, you won’t have any financial issues to deal with.
Posted on July 8, 2021