How to get the best small business loan
There are many different business loans to choose from. Some loans are suited for more traditional borrowers and some are for those who may have difficulty qualifying otherwise. The first consideration that plays into many of the best small business loans is having a business plan in place. A well-written business plan can seal the deal and get you the loan you’ve been hoping for. If you’re inexperienced in writing business plans, you needn’t worry. There are many courses available online that can take you through the process step by step. Some are at a very low cost and others are even free. If you just don’t have the time or don’t feel comfortable writing a business plan, you can hire someone to help. Authors and consultants that have experience in writing business plans will construct one for you. However, it’s important that you are thorough in your communication and proofread the plan. Also, you may want to prepare a presentation that illustrates your plan from a visual standpoint. Many lenders will require an in-person interview. They’ll ask plenty of questions, so preparation is very important. If the lender is confident that your new business will succeed, they’ll most likely approve the loan.
Credit is also another major determining factor for many lenders. They’ll want to check your personal credit and if you own any other businesses, they’ll want to check the business’s credit as well. While most people don’t consider their own personal credit as any indication as to whether they’ll be successful, it’s a strong indicator of how you manage your finances. This is often likely to carry over to your business’s credit as well. Many small business owners make the mistake of mixing their own finances with the business’s credit. This should be avoided if possible. A business needs to establish its own credit record to qualify for leases, loans, and anything else involving a credit check. If your personal credit needs improvement, it’s wise to take care of this prior to applying for the loan. Many people find credit monitoring and activity alerts a helpful tool in managing their finances. If you’re unable to fix your credit issues, you can hire a credit repair agency to tackle the issue. For a monthly charge, they’ll challenge negative items on the report. Many people have has some degree of success with these companies.
Personal assets are also taken into consideration. If the finance company requires collateral, they may require that you use personal items to secure the loan. Real estate, vehicles, and other valuable items are typically used. Liquid assets such as bank and retirement accounts may also be reviewed. This is due to the fact that the business owner may not see any profit for quite some time, yet still has to survive. Overall, the company providing the loan needs to feel confident that they’ll be repaid, regardless of how the business performs.
The many different types of business loans that are available:
The most best type of loan is from the Small Business Administration. This is the BEST loan – and is backed by the administration, so the lender is protected. However, this means that a very standardized underwriting process must be observed. The exception to this rule is people who don’t have any credit or have recently immigrated to the United States. The SBA also has grant programs available for borrowers who meet certain demographical criteria. The borrower must provide a business plan and is always required to have an interview to present the plan. Compensating factors that are taken into consideration are the amount of equity the borrower will invest, assets, and credit. This business loan suits many different people; however, those who are citizens with many credit blemishes and limited assets may have difficulty qualifying. Local banks are able to process and fund these business loans.
Private investors and equity firms are also a source of financing for new or existing small businesses. These companies will provide the necessary capital for equity in your business. This means that they become partial owners of the business. These agreements are typically based off of the current or estimated value of the business. If a new business is being proposed, an airtight business plan will be required. The companies that provide this type of financing are typically comprised of high profile seasoned executives. They’ll want to ensure that they’re making a smart decision in not only investing in your business but you as well. If they’re not confident that you’ll be able to succeed, chances are they won’t put any money on the table. Also, an attorney is a necessity when entering into these types of agreements. They can also negotiate on your behalf to get you a better deal. This type of loan is best suited for those who may have had financial difficulties, however, have a high aptitude for success.
Merchant credit advances and invoice factoring have become popular in recent years. With these small business loans, the funding is based on an existing company’s receivables. Since the turnaround time is quick and the underwriting process is nearly negligible, the convenience factor is beneficial. The best small business loans do come with a heftier price tag than other types of financing. However, in an emergency or unexpected event, the benefit may outweigh the cost. If the business owner has time to go through the underwriting process, a business line of credit is an alternative that typically costs less.
After you’ve decided on the best small business loan:
It’s important to stay in touch with the business loan lender during the process. If they request documentation, be certain to provide it as quickly as possible. Also, state any potential issues up front. Nobody likes surprises during the process and it may even cause a denial that could’ve been prevented. Above all else, pay the loan on time to begin or continue building credit for your small business. A business loan will provide you with the opportunity you need at a price that you can afford.
How can we help get you the best small business loan?
Delancey Street looks at your situation, and then makes a recommendation on what we think is best small business loan to help you. Sometimes, that might be a term loan, and in other instances, it might be a line of credit. Typically, every business has a situation which forces it to choose one over the other. In some cases, if you have a short term need, then a line of credit might be faster and more suitable. It all depends on your situation, and it’s our job to make the recommendation that matters. For example, a loan is great for companies that have been in business for over 6 months, and have some recurring cash flow and track record. In addition, depending on whether it’s an unsecured or secured business loan, collateral may be requested by the lender. It depends on your unique situation.
Typically, loan terms are the best small business loans, and good for amounts up to $1-2 million. They have low annual interest rates, and can have terms of 2-36 months. Typically, there may be a loan origination fee, but it’ll be low. These business loans are great for people who need a form of long term financing, which will be used to pay for new inventory, new locations, quite frankly – anything new – which will generate an ROI over the long term.
Lines of credits can also be offered, up to $100,000 or more, depending on your credit history. The great thing about lines of credits is the fact you only pay interest on what you draw. You can take advantage of new business opportunities with a line of credit. Because the line of credit is “on top,” you can pounce on opportunities as they appear, and be ready for unexpected costs. Simply put, depending on your situation and your needs, one or both may be good for you.
What are the best small business loans
Are you struggling to find funding for your next business idea? There are SO many options, and sometimes you just want it all centralized so you can find the truth. The fact is, there is a type of business loan product for just about every type of business need you can imagine. Whether you need money for renovations, buying supplies, or inventory, etc, there’s a funding option for you.
Here’s some of the things to consider, when looking for small business funding:
-How much money can you get
-How fast you can get it
-What documentation you need for the business loan in question?
-What are your personal and business profiles looking like?
-How much is the funding going to cost you?
-How are you going to pay it back?
Once you know the answers to these questions, you can choose the right funding option for your business.
Business Term Loans – Best Small Business Loans
Let’s chat about term loans, and all you possibly need to know about them!
Term loans sound intimidating, but are actually a great type of product. They are the classic small business loan that everyone asks for. They are flexible – you can use them for just about anything, including working capital, buying equipment, etc. There are many lenders who can help you get the best small business term loan. There’s a lot of competitors, here’s more info about them.
How much can you get: You can get the best small business term loan for $100, or even $500,000. Most lenders cap their minimum at a few thousand dollars, and generally the maximum can be in the millions. There are plenty of lenders who handle these. Like any type of business loan, the amount you borrow will depend on your business history, and the lender. Businesses with a high credit rating, a good borrowing track record, and strong revenue, can get a lot in funding.
Speed: One of the great things about term loans is the fact they close fast. Online lenders have online applications, and in some cases you can get an approval in less than 5 minutes. Some lenders even give instant approvals. If you’re approved, you can expect the funds in your account within 24 hours. That’s fast! If you apply for a small business term loan through your bank, it can take forever. You usually have to apply in person, or over the phone. In addition, you have to discuss your business needs, and go through immense paperwork. Frankly, it’s a horrible waste of time.
Required docs: You’ll be expected to complete an initial application form, and then submit further documents. Each lender has different requirements. Most ask for your business credit profile, proof of good standing, basic financial documents like tax returns. If you’re applying for a secured business loan, you’ll need to send documentation about the collateral you’re putting down. You’ll probably also need to provide documents like: profit loss statements, business bank statements, credit score, business tax returns, personal tax returns, driver’s license, voided business check.
Who can get it?: Every loan lender has a different set of qualifications, but you can generally get a term loan if you have been in business a minimum of 3 years, have a credit score of 680 or higher, and have revenues exceeding $300,000. Even if you don’t meet those requirements exactly, you may get approved. Many lenders are lenient, and some are geared towards businesses with bad credit / startups. Some mainstream lenders might reject you if you’re in a high risk industry like gambling, etc. If you’re a minority group, a woman, or veteran, you might be able to get special business term loans that are easier to qualify for.
How much does a loan cost?: The interest rate you pay is the main expense in the best small business loan. You get a lower interest rate if your credit is strong, and cash flow is strong. You also get a better interest if you put up some form of collateral. Small business loans can have either a fixed, or variable, rate of interest. The advantage of a fixed rate term loan is you know exactly how much you’re paying each month. There’s no surprises at all. Variable rates can change every month. Even with a variable rate, you usually have a fixed margin rate which added to the benchmark rate. The benchmark rate is usually the prime rate, or LIBOR rate. The rate goes up and down and based on it, you’ll be charged a different interest rate. The fixed margin rate doesn’t change. It stays fixed, and gets added to the benchmark rate. For example, if your lender has a margin rate of 2.75%, and the benchmark rate is 5%, you’ll pay 7.75%.
The final cost of the loan is typically determined by the fees and penalties the lender is charging. It’s important you read the fine print before taking out a small business loan, because otherwise, you could just pay excess in fees.
Here’s some of the most common fees:
Origination fee: Typically, most lenders will charge 3-5% as an origination fee. It’s the cost of processing the loan, and it includes the cost of running a credit check. The origination fee is typically added to the cost of the loan, or taken out of the loan amount.
Check processing fee: This is about $10 per check. If you repay the loan by check, you might have to pay a fee for every single payment.
Late payment: Typically it can be anywhere from $10-35, or 3-5% of the failed payment. You will be charged a penalty any time the payment is late, returned, or fails due to insufficient funds.
Prepayment: Some lenders will charge you a penalty if you repay the small business loan before the term of the loan, or if you overpay. It’s important you think about prepayment penalties before you pay off the loan, or even accept the business loan!
Legal fees: It can be from $1500 to $5000. If you’re taking a complex small business loan, you might have to pay legal fees, or closing costs, to cover the cost of your loan agreement.
Business Line of Credit – Small Business Loans
Everything you need to know about business lines of credit.
Business lines of credit are great! They are pre-approved sources of funds that you can drawn on whenever you want. You only repay the amount you’ve borrowed, and the rest of the funds wait – ready for you to tap into whenever you want. For example, if you’ve been approved for a business line of credit of $100,000 – it means you have $100,000 that can be used whenever you want. For example, if you use $60,000 of the $100,000 then you would pay interest on the $60,000 and only that amount.
Business lines of credit can be secured against collateral, or can be unsecured. You can get a revolving line of credit, or a non-revolving line of credit. Revolving lines of credits are a type of loan, where you can borrow as soon as you repay the funds. Once you pay back the $60,000, for example, you can take out another $60,000, or even the full $100,000 – if you wish. Some lenders will cap the number of times you can withdraw funds. some lenders restrict the numbers of draws you have. Business lines of credits are flexible, and are great. There’s usually no restrictions, and you can use the funds to pay for payroll gaps, expand inventory, or more. Here are examples of companies who offer a type of LOC: OnDeck, PayPal Working Capital, or Kabbage.
How much can you get: Each loan lender has it’s own minimum and maximums. Most have a minimum of a few thousand, and some offer up to $1 million.
Speed: Approval for a business line of credit is really fast. It’s faster than getting a standard business term loan. Online lenders can typically get you approved in a few minutes. Generally speaking, the more you want to borrow and the longer the repayment term, the longer it takes to get an answer.
Required Docs: Traditional banks usually ask for the same documentation you need for a line of credit. You’ll need to complete an online application, have a proof of credit score, have proof of borrowing history, etc. Some online lenders will connect to your business bank accounts, and process your loan faster. Most lenders will ask for proof citizenship, like drivers license etc, bank statements, PNL statements, credit history, business tax returns, and personal tax returns.
Profile: Anyone can apply for a line of credit, but businesses who has been in existence for over a year, and have revenue of over $180,000, and have a credit score of 630 or above – are more likely to qualify. It’s easier to qualify for a business line of credit than other types of business funding. Startups with as little as a few months of business history can get a line of credit, and typically poor credit won’t deter lenders.
Costs of funding: How much a business line of credit costs you depends on a number of things like how much you take out, your history with the lender, and which lender you use. Here are some costs to look out for when you apply.
Maintenance fee: $10-$20 per month. Some charge a monthly fee.
Payback: Some loan lenders give you several years to repay the full amount, but most will expect repayment within 6 to 12 months. Line of credit repayments are usually done on a weekly, or monthly, basis. If you have a revolving line of credit then once you’ve repaid the amount you borrowed, you can withdraw more funds, and then reset the repayment term again. It’s important to remember that if you make multiple withdrawals at different points – then each withdrawal has its own repayment terms, so you will have multiple dates.
Is it right: Business lines of credit are great for making large purchases, or paying for unexpected expenses. If you get one, this is a lifeline.
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