Starting a business is rarely easy. Even the best ideas or inventions need funding to thrive. But when funds are limited, it can be challenging to get started.
Small business loans are designed to help new businesses get off the ground. However, due to strict lending regulations, getting a business loan from a bank is nearly impossible.
The small business loan application process can be taxing; however, there are ways to minimize stress.
Create a Business Plan
Regardless of the lending institution, they’re going to want to see a sound business plan. It should include what type of business it is, how much money is needed, and how the funds will be utilized. It also needs to show the projected return on investment.
Decide on Loan Type
All loans are not created equal. Some loans are a direct result of crowdfunding, while others come directly from a lender. In the case of the latter, a lot of variables come into play.
For a business that’s not up and running, a personal loan or secured loan may be the right choice. For companies that have been operating for at least a year and show a positive ROI, Small Business Administration loans and personal lines of credit may be a viable solution.
Choosing a Lender
Shopping for the right lender is comparable to shopping for a home. While many of them seem to be the right fit, not all of them are. Narrow down the search to two or three lenders and then research what they have to offer. Take note of percentage rates and terms.
Choosing the one that offers the lowest annual percentage rate enables small business owners to pay the loan off faster with less interest. However, again, take note that not all lenders are the same.
Microlenders, lenders who offer loans less than $35,000, have different terms than major financial lending institutions. The Small Business Administration provides loans as low as $5,000 and as much as $5 million.
When it comes to opening a new business, the most important thing is being financially stable. Accepting a larger loan on the premise that business will be booming may end negatively. Create a business plan, be realistic and most importantly, grow slowly.