There are three core types of business loans available for small businesses: bank loans sponsored by the Small Business Administration, loans from web-based lenders and microloans from nonprofits. Before you apply for any of these products, it helps to find out if your firm meets the lender’s criteria:
You need good personal and business credit to make the grade for an SBA-sponsored bank loan. However, the SBA offers business loans ($5,000 to $5 million) through banks with the 7(a) loan program. To qualify, you’ll need to present:
- Span of Operation: Many online lenders require at least a year of constant operation; banks will readily take you if you’ve been running the business for at least two years.
- Credit scores: banks have set their credit score requirements at not less than 680.
- Confirmation that you can repay: Banks want proof you’re well placed to make monthly payments. Carry financial statements indicating that your income is not less than 1.25 times your cost of operation, plus the new amount to repay.
- Minimum revenue per year: Most big banks have a minimum per year revenue cap, ranging from $50,000 to $150,000. Calculate your annual income and compare it with the lender’s threshold to see if you qualify.
With the average APR for web-based loans standing at 108 percent, you only want to use them as a last resort lest they prove difficult to settle for the small business and lead to debt traps.
However, approval rates are in the skies; funds are quickly and readily available even within 24 hours. They also provide high risk business loan.
Tiny firms should consider working with micro-lenders. They are non-profit unions that issue short-term loans not exceeding $35,000. APR for such loans is also higher than those of bank loans but prove valuable by helping you through a temporary cash-flow crisis.
Microlenders ask for detailed business plans as well as financial statements. Be ready with your paperwork before applying.
A micro-business loan can help bridge your business expansion needs, but in the worst case, it could lead you into a debt trap. So before borrowing, be sure to consider your options and go for the one that offers ease of settlement, has reasonable APR and satisfies your needs. But first, verify that the growth opportunity is worth the risk.Get Started Now