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Getting a small business loan for your small business is absolutely vital to its survival. No matter how much cash you have on hand, a small business loan can help deal with all of the unexpected expenses that come with running your own business. One of the main reasons that many small businesses fail is because they don’t have the cash that they need to function on a regular basis. They don’t have the monetary means to handle the day-to-day issues that come up with running a business. Before they know it, they’re broke and their businesses have folded.
Main Reasons That You Need a Small Business Loan
When you’re running a small business, there are many many reasons that you’re going to need quick access to cash. They include the following:
You need the money to hire employees
Although many small business owners start out by trying to do as many jobs as they can by themselves, they quickly realize that they’re going to need help if the business is going to be sustainable. Because they didn’t account for additional personnel in their budgets, they end up becoming financially strained. A small business loan could help cover the cost of hiring an extra person.
You need to buy equipment
No matter how prepared you are when it comes to buying equipment for your business, there’s always going to be a better, more efficient piece of equipment that could make your business run even better. If you haven’t set aside the funding for that, you going to be in a tight position and run the risk of falling behind your competitors.
You need to expand your business in order to remain competitive
In order to remain competitive in a tight market, many small business owners realize that at some point they have to expand. If you don’t have the capital to do that, you’ll be putting yourself at a disadvantage.
How to Qualify for a Small Business loan
Now that you understand how important a small business loan is to a small business, it’s also time to learn that small business loans are extremely difficult to get. Many lenders require an income eligibility threshold that is roughly 1.25 times your expenses, and that includes the repayment amount. This is a high threshold for anyone to meet, let alone a struggling new business. Lenders have extremely high lending criteria that you must meet before they’ll even sit down to discuss a loan with you. The following tips can help increase the chances of you getting a small business loan.
Bank loans require extremely high business and personal credit in order for a small business to qualify for an SBA-backed loan. If you’re going to go this route, make sure that you have:
- A minimum credit score of 680
- A minimum annual revenue amount of between $50,000 and $150,000.
- Proof that you’ll be able to repay the loan, meaning that your income will need to be 1.25 times your operating expenses, including the new repayment amount that you’ll be responsible for.
Micro lenders are a great option for very small companies. They usually extend short-term loans that amount to less than $35,000. Their APR tends to be higher than bank loans, but they could be useful if you’re trying to stem a temporary cash deficit. Bring detailed business plans and financial statements to prove your case.
Although these are considered a last resort, online lenders may be helpful for small businesses who have exhausted other options. These lenders have extremely high APR, sometimes as high as 108%, making it difficult for some small business to make timely payments before the debt is fully due. On the upside, these loans come through very quickly, usually within 24 hours. If you’re going to go this route, be extremely disciplined with paying the lender back so that you don’t find yourself stuck in serious debt.