Small Business Loans

What is a Small Business Loan?

Small business loans are a temporary provision of money offered to independently owned and operated firms that are limited in size and number based on the industry they work in. The loan is usually provided at interest. An example of a small business loan is one given to a small company that has fewer than 500 employees and makes no more than 7 million dollars in sales. Small business owners usually borrow money from a financial institution to start, run, or expand their businesses.

Getting a loan is one of the major issues facing small businesses worldwide, as financial institutions are disreputably reluctant to lend to small businesses. This is because loaning to small businesses is a riskier proposition than lending to established firms or mortgage lending. Financial institutions profit more from lending to large enterprises, since the underwriting costs for assessing, verifying, and processing a small loan is almost the same as for a bigger one.

How to Get a Loan for a Small Business

Small business loans can help your business grow, as you can use them to fund new research and development that allow you to expand into new territories. But unlike big, established companies that get granted loans on the status of their business, small business loans are given based on a small business person’s financial situation. This makes it difficult for startups to secure a loan facility. Nonetheless, we have identified the things that can help you get a loan for your small business.

  • Determine the type of business loan you need. Bear in mind that there are various types of small business loans available. Options are provided depending on an individual’s business needs. Small business loan choices include a small business line of credit, which limits the amount of funds a company can access; accounts receivable financing, where credit is secured by a firm’s accounts receivable, allowing them to get cash immediately. Also, businesses can obtain working capital loans, which can be used as a vehicle to finance the daily operations of a business. Other types of small business loans include equipment loans, small business term loans, and equipment loans, among others.
  • Research on your potential lenders. Inquire into the available lenders, so you know beforehand where to begin your loan application. You can source funds from large commercial banks, direct online funds, local community banks, and peer-to-peer lending sites, etc.
  • Predict how the lender will see your credit risk profile. Anticipate the judgment call your potential lender will make on your credit and risk profile and review them carefully.
  • Prepare all your financial statements. Ensure that your financial statements and accounting records are complete, correct and examined carefully.

Others include:

  • Gather a factual and comprehensive information for your loan application.
  • Specify the amount you want to borrow as well as how you intend to make use of the credit.
  • Determine what collateral you can provide.
  • Examine the key terms of the loan put forward.
  • Review your online profile and comments to look professional.
  • Research on the small business lending process.