Starting a small business is a really exciting endeavor, but funding it can suck all the joy out it. One thing that small businesses learn early on is that they need additional funding to make sure that their businesses can keep pace in the marketplace. There are so many unexpected business expenses that can drown a business if it’s not equipped to handle them. This is where a small business loan can help save the day. Asmall business loan allows a small business to have some breathing room when it comes to taking care of business on a day-to-day basis.
Things to Think About Before Getting a Small Business Loan
Small business loans are some of the most difficult types of credit to obtain, and yet they’re absolutely necessary. In order to get one, you need to make sure that you have all of the documents necessary to qualify. Qualifications differ depending on the lender that you’re working with and the type of small business loan you’re applying for. You also need to make sure that you’re able to comfortably pay back the loan based on the terms of the lender. Although it may not always be possible depending on they type of loan you get, choose a loan with a low APR so that your monthly payments are more manageable.
The following tips can help make sure that you come to the table with the right docs no matter which type of loan you’re applying for.
SBA-Backed Bank Loan
As mentioned above, SBA-backed banks loand are extremely difficult to get, as stated by Inc. In order to qualify for these loans, you need to make sure that your credit is stellar and your business’s financial history is flawless. To qualify for an SBA-backed bank loan, you must have the following:
- You’ll need to have a minimum 680 credit score.
- You’ll need to provide roof that your small business has been operating profitably for at least two years. You’ll need to provide documentation that attests to this fact.
- You’ll need to prove that you’ll be able to pay beck the loan without issue. The SBA requires that you have an income eligibility threshold of at least 1.25 times the total amount of your expenses. That amount must include the amount you’ll be paying back for the loan.
Microlenders are a very popular loan option for small businesses that need smaller infusions of cash. Microlenders are non-profit lenders that extend loans that rarely go about %35,000. While a small business might not be opening a brand new office with this amount of cash, it may use the money for things like unexpected equipment expenses. The thing to keep in mind with microlenders is that their APR is usually much higher that that you’d get with a bank small business loan, but that may not be an issue when your business needs cash right away.
Online lenders are have also gained traction as an option for people who have exhausted or can’t qualify for other lending sources. The good thing about online lenders is that they can get you money really quickly, usually in as little as 24 hours. They can even approve when your credit is less than perfect or you don’t have any collateral. On the flip side, their interest rates are extremely high, sometimes as much as 108 percent, making them a funding option that should only be used as a last resort. Be extremely disciplined about paying them back so that you don’t put your business at risk.