Every small business owners understand the probability that at some point during the lifetime of their business they will need financing from the outside. Due to this, understanding the small business loan application process can be critical the the company’s future. This guide to small business loans is designed to help you understand your options so you can make the choice that’s best for your business.
Small business loan application from a bank
Bank loans generally offer the cheapest interest rates and as a consequence are the most difficult to get. Most bank small business loan applications will judge a business owner on a number of factors before lending granting a loan application:
- Credit. If your business is young , this could refer to the private credit history of the borrower. For established businesses this may refer to the credit history of the company only or a combination.
- Cash flow. Banks will looks into your financial history to see how much cash flow you have had in the past and what you might to make in the future. Many will need you to meet a certain debt to cash flow ratio file a small business loan application.
- Management. The banks will need copies of you and your manager’s resumes. You may wonder what this has to do with a small business loan application but they use this to determine how much experience you have in the industry.
- Capital and Equity. This includes all cash on hand, equipment and any other physical assets your company may have.
- Collateral. Anything of value related to the company that could be used to back your loan. If you do not repay your loan, the bank will seize these assets.
These somewhat extensive requirements are what allow banks to provide lower interest rate loans because after determining all of the above factors they can easily judge how much of a risk you are (More or less; if you recall the banking crisis caused by bad loans a few years ago) Sadly not all of us can meet these requirements, which leaves us out in the cold when we need a bank loan.
Summary: Bank loans are the first place you should start. They will work best for established businesses with good credit history and cash flow. They are particularly hard to find right now do to the aftermath of the banking crisis, and will take time to find and get through the application process and receive the small business financial help you need.
Small business loans from the SBA
When your small business loan application to the banks was shot down, the SBA should be one of your next stops. This government agency will back loans to small business owners who the banks have rejected in the past . Basically , if you have been denied a loan, the SBA will promise to repay someone who lends to you should you fail to repay your loan. With this backing, lenders are a bit more likely to approve someone they have rejected in the past.
To get approved you will need to supply the following:
-Statement of personal history, required for each principal applying for a 7(a) loan
-Personal financial statement
-Balance sheet and profit and loss statements
-Projection of income and finances
-List of names and addresses of any subsidiaries and affiliates
-Certificate of doing business
-Signed business federal income tax returns for previous three years
-Signed personal federal income tax returns for previous three years
- Personal résumé, including business experience of each principal of the business
-Brief history of the business and its problems, including explanation of why SBA loan is needed
-Copy of business lease
-Additional documents if proceeds will be used to purchase existing business
Summary: borrowing from the SBA is one of your top choices in terms of price and accessibility. The drawbacks are that it adds second layer to lending process (and a federal government layer at that), which means it can take even longer to get small business financial help. If you can afford to wait however, then it is well worth it. Currently small business legislation is stalled in the House and Senate, so funds may be limited for some time.
Cash flow based small business loan applications.
It’s standard that most banks will lend or furnish small business loan application to a business based on a variety of factors calculated from the small business loan application: Cash flow, time in business, personal experience of the owners , past tax returns and personal and business credit scores are all considerations. This is good news if you have managed to maintain a good or excellent credit score. If however, you have made errors, missed payments, or had to hold a high balance through an emergency then you will have trouble getting financial help from a traditional lender.
There is actually a movement away from the focus on personal credit in the small business loan application process. This option small business financing help may be the answer for quite a few small business owners who have been turned down by the traditional lenders.
How cash-flow-based commercial loan financing functions .
Small business loans may not always be the answer. Sometimes you will need more creative business financing such as Small business loan applications based on cash flow typically comes in the shape of an advance. E.g. merchant advance. The lender will buy your business’ future credit card sales at a somewhat lower amount and advance you the cash. Essentially, if you are expecting to make $10k the lender will purchase that $10k for $8k. You have $8,000 to commit in your business and no monthly payments to make. The key to this being a practicable option is naturally in the cost. Companies providing honest small business financing in the form an MCA will also offer a discount on your credit card processing fees. This will help offset the slightly higher cost of an MCA equated to a bank loan.
Related articles
- Grow your business—Securing the small business loan application (dohertyassoc.com)
- A Merchant Advance and Other Creative Business Financing Solutions (dohertyassoc.com)
- Personal Credit and Your Small Business (dohertyassoc.com)
- What are the best options to finance a business this month? (dohertyassoc.com)
- Small Business Jobs Act (dohertyassoc.com)
No related posts.
Related posts brought to you by Yet Another Related Posts Plugin.
