It’s very exciting to start a brand new small business, especially if you’ve been waiting to have your own business for a long time. One of the things you learn early on is that there’s always an issue that needs money thrown at it. Pretty much the way new homeowners learn early on to have cash on hand for last-minute emergencies, new business owners learn that it’s good to have access to cash that can be used to handle unexpected issues that arise. One of the best ways that a business can get that extra cash is via a small business loan.
Easier Said Than Done
It’s true that a small business loan can help a business take care of major costs that the company needs to incur. Having said that, it’s also true that it’s really hard for small businesses to obtain traditional small business loans, especially those backed by the Small Business Administration. There are, however, several types of small business loans that are avaiable, some more difficult to qualify for than others. Check out below to find out about the different types of small business loans there are and what you need to get them.
SBA-Backed Bank Loans
Small business bank loans that are backed by the SBA are some of the best options out there for small businesses seeking funding. The loans usually have low interest rates that range between six percent and eight percent, making it easy to manage the monthly loan payments. The loan amounts can be very generous, making it easy for companies to tackle everything from business improvement initiatives to office computer upgrades.
The difficult thing about SBA-backed loans is that it’s pretty difficult to qualify for them. The lending criteria is very strict, and many businesses simply don’t qualify. For one, business owners need to have excellent business andpersonal credit scores of at least 680, something that can be difficult to do for a young business. You also need to show at least two years of continuous operation, but most banks are looking for more years. You also need to prove to the bank that you’re capaable of paying back the loan. The bank uses a calculation that states that your income must be at least 1.25 times the amount of your operating expenses. If you’re going for this type of loan, make sure you bring every bit of paperwork you can to prove that you meet the criteria.
A microlender is a non-profit lender that extends short-term loans to small businesses. They have gained popularity as a resource for companies looking to borrow relatively small amounts of money when compared to traditional loan amounts. Loans from microlenders rarely exceed $35,000, but they still have pretty strict credit requirements. and they come with relatively high APR when compared to traditional bank loans. They provide an attractive option for businesses that are looking for fill-in-the-gaps funding.
Online lenders are considered an ideal option for some small businesses that need to get their hands on money fast. They can usually get you your funds in as little as 24 hours. They also have much more relaxed lending standards than other lenders, and they have a high approval rate. The downside is that these loans often have interest rates that reach into the triple digits, making them too expensive for many businesses to comfortably repay.
If none of these small business loan options work for you, consider other options like loans from family and friends or appealing to local investors. At the end of the day, you want to make sure that your business has access to cash when it needs it.