Small business loans are your cushion anytime your company threatens to hit rock bottom.
The term “small business loans” is an umbrella description of various forms of funding, but your priority as a retailer is to pick the right product.
And many times, your needs determine the right loan for you. So you must understand how these loans work to make the most of them.
What’s a Small Business Loan?
It is a form of funding a bank or lender offers a business in return for interest and fees, and payback (of the lent amount) in a defined schedule throughout a given span.
But settlement terms, interest rates and loan fees vary largely depending on the product, the finance provider, and other benchmarks, like your credit background, years of operation and current debt status.
Here are some types of products to consider when looking to get a business loan and how to use each;
|
Type of Funding |
How to Use it |
|
Merchant cash advance |
Maintain cash flow and purchase inventory. |
|
SBA Loans |
Flexible loans to cover your ever-changing needs |
|
Business Credit cards |
Purchase office materials and settle minor expenses |
|
Bank Loans |
Bank-issued loans to grow your small business |
|
Crowdfunding |
Expand your company; purchase tools that will streamline business processes |
|
Business lines of credit |
Fund your new marketing campaign |
|
Hard money loans |
Sort out personal business expenses |
|
Invoice financing |
Distribute profits and invest back in your company |
Factors to Consider Before Taking Out a Small Business Loan
To begin with, you will need a well-drafted business plan that specifies how you plan to utilize the extra funds to improve your business.
Tie specific goals for the finances borrowed, e.g. exploring new markets, upgrading your product or service, expanding your team, launching a new, or maintaining cash flow, acquiring supplies, purchasing inventory etc.
- Timing is key
The right time to seek out a loan is when; (1) you need extra finances or (2) meet minimum criteria.
Most lenders check your;
- Credit score,
- Years of operation
- Per-year revenue
- Ability to pay back
But unlike banks, most alternative lenders offer funding without a credit pull or checking how long a business has been running.
- How Much Do You Need
Work out the target amount you need to achieve the stipulated goals. Deciding how much you need upfront is important because it also influences the type of funding you apply for. Lastly, go for an amount that you can repay.
- The type of Lender
Today’s borrower can look beyond banks and credit firms thanks to modern financers. This group of finance providers, known as alternative lenders, are responsible for most of the new products available today e.g. MCAs, Peer-to-Peer lending, Crowdfunding, and so on.
- Lending terms
Consider the following terms before taking out a loan;
- Full repayment time if you make the minimum per-month payment
- Any additional conditions mentioned under loan terms.
- Repayment model; for instance, MCAs are repaid differently than bank loans.
Terms and conditions vary by lender and the funding product a business seeks out.
- Interest and Other Fees
Various lenders structure their loan interests and fees differently. But factors like the current economic status, your credit score and borrowing history influence interest rates and fees.
Final Words
Considering these five factors can help ensure you make more informed choices when it comes to acquiring a business loan