Getting a small business loan is an important part of doing business when you’re a small business, online business or a small startup. A small business loan can be a lifesaver in situations where business needs are immediate but money is short. Having said all of that, getting a small business loan can be extremely difficult for many small companies.
There are many reasons that getting a small business loan makes absolute sense. Those reasons include the following.
Pay for unexpected business expenses
One of the first things people who own small businesses learn almost immediately is that there is always money needed for something. Everything from new equipment needed to last minute taxes to unexpected higher all require funding. If you have not accounted to those in your budget, you’re going to need to find a source of funding.
Obtain money to expand your business.
Oftentimes, small businesses have the opportunity to expand beyond their current footprint. In order to be able to meet for new demands, they’re going to need to have funding behind them to support their new Endeavor. If they don’t, it could cause their business to crash.
Obtaining a Small Business Loan
Obtaining a small business loan is extremely important for a small business, and yet, as mentioned above, it is one of the hardest things to get. The Small Business Administration, or SBA, is notoriously picky when it comes to approving small businesses for loans. This forces many small businesses to consider alternative resources for funding. When it comes to small business loans, small businesses turn to banks, microlenders or online lenders. Following are some ways that you can increase the chance of getting approval from any of these sources.
Bank loans from the SBA
Obtaining a bank loan that’s backed by the SBA is one of the most difficult ways for a small business to get a loan, as stated by Inc. Banks have notoriously stringent criteria that businesses have to meet in order to qualify, so the application process can be long, arduous and tedious. If you are going to go the bank loan route, make sure that you meet the following criteria:
- You have an absolute minimum of at least a 680 credit score
- You can prove that your company has been functioning consistently over at least a two-year period.
- You need to be able to prove that your company’s annual revenue meets a minimum threshold of anywhere between $50,000 and $150,000. You need to be able to prove this to the lender before they’ll even consider you.
- You need to prove to the lender that you’ll be able to pay back the loan. This means that you’ll need to show financial statements that prove that your income is at least 1.25 times your operating expenses. This amount needs to include the repayment amount if you get the loan.
Microlenders are nonprofit organizations that extend small business loans to businesses. These loans usually amount to $35,000 or less. While this amount of money may not be large enough to cover major business expenses, it can help small businesses cover certain areas of their business where they have shortfalls.
Online lenders should be looked at only when all other options have been exhausted. Some online lenders operate with impunity when it comes to funding small businesses. Your APR can reach into the triple digits, crippling small business’s financial standing as well as their ability to pay the loans back. Not only will small businesses be trying to pay the principal of the loan back, but they’ll also be saddled with high fees and exorbitant interest rates. If you’re going to go through the online lending direction, make sure that you have more than enough funds to diligently and aggressively repay the loan so that you’re not saddled with additional crippling debt.