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Important Facts about Business loans That You Should Know
Gone are the days when big companies were the only ones allowed and granted to get business loans. Without partiality, this trusted trade for entrepreneurs has seemed to have favorably opened its entrance to medium and small businesses as well.
Granting that a loan application is the next best move for your business, there are things you need to learn about the lending industry and business loans in general before you take the first big step!
1.Did you know that going to a bank is not your only option in acquiring business loans?
Take note that there are different kinds of entrepreneurial loans you can choose from. Here are your options.
Government-backed Loans
If affordability is your priority, applying for a government-backed loan or SBA loan is your best option. It is basically designed to match the needs of different businesses with very low interest rates that range from 6 to 8 percent within a 10-year long amortization. The good thing is that up to 90% of the loan is guaranteed by the government, which makes it a low-risk choice for borrowers. However, only a few applications are granted for government-backed loans which are handpicked according to certain qualifications set by the SBA. Also, its long and arduous process and submission of documents will make you question its worth especially if what your business needs is urgent financial funding.
Conventional Bank Loans
Speaking of urgent financial needs, one of the quickest processing business loans you can opt to have is the conventional bank loans. Its impressive low interest rates and notable processing speed make it an adequate option for your business. However, since this type of loan only allows short repayment period, it is advised that you just borrow a certain amount - one that you can realistically pay within a given timeframe.
When do you need the money? How much do you need? These questions will help you decide in choosing the perfect loan plan for your business. Also, a conventional bank loan gives you space for freedom as it is more lenient on what you plan to do with the borrowed amount. But since only 20% of bank loan requests are granted, a nice set of business plan objectives will make you stand out.
Alternative Loans
You have probably heard this famous Alexander Graham Bell quote a couple of times: "When one door closes, another opens." This old adage is pretty much still relevant and applicable with loans.
Because SBA and bank loans usually require remarkable financial history - which may be hard for small and struggling businesses to provide - alternative loans become more attractive to some business owners. Of all types, it is the fastest that you can easily have it in one sitting. However, this move is risky on the lender's side. To compensate with the risk, high interest rates apply.
However, with proper planning, projection and marketing strategies, your borrowed money, and the interest that comes along with it, is certainly payable still. In the Netherlands, 39% of startups opted to get alternative finance from alternative loans in 2020. Up to now, the trend continues to grow. Some popular alternative lenders are Kabbage and Biz2Credit.
Which loan type is right for your business? It is essential that a thorough evaluation of your business is made before you make a decision. This detailed assessment is a pre-requisite in filing a loan application in order for you to find the type of loan that matches the needs and priorities of your business.
2.Did you know that there are 5 C's of Credits?
A detailed business plan should be the end product of your evaluation. Once a decision is made, you can then readily discuss the request to your loan provider.
The loan request process has four phases, and these phases are guided by the "5 C's of Credits" - character, conditions, capacity, capital and collateral. All of these things are vital in the analysis of loan-purpose, repayment-source, loan structure and management.
Lay all your cards on the table so that your lender can set proper expectations and so you can commit to the loan conditions plausibly.
3.Did you know that half of startup companies close after 5 years?
That's right! The first three to five years of a business is the most critical phase in nurturing small companies for optimal growth. As a matter of fact, research shows that only 50% of startups succeed during their infancy, while the other half tumbles down and lands back to the foot of the hill where they originally started its mount. However, nobody is scaring you! Business is always about taking risks. Besides, an array of options is available so these statistics can be countered.
It is a wise move for business owners to apply for business loans during the early stages. But in order for you to realistically align your goals with your needed funding, financial projections need to be made as well. These projections must be based on initial income statements, cash-flow statements and balance sheets.
Hiring a CPA for the job is best if the document preparation seems to be too burdensome on your end, and the analysis of such financial statements seems too complicated.
4. Did you know that commitment is a priority for successful borrowers?
Whether you are applying for an education loan or business loan, your success as a borrower will always boil down to your level of commitment.
In the event that your loan gets approved, start building a positive professional relationship with your lender by taking care of your reputation as a borrower and as a business owner. Your lender can also be a great resource of financial advice, which may be valuable to you along the way.
Since the economic stagnation, the entrepreneurial trade has been redefined by the existence of a variety of startup companies and the emerging of a few more, whose owners manually try to be captains of their own ships. These businesses - whether medium or small - put their best efforts to thrive on an uncertain commercial platform through loans. Applying for business loans may seem a bit risky for many, but knowing more about its processes gives you a little more confidence to take the leap. Be smart in your choices and continue to thrive.
Kath Martinez: understands the intrinsic attributes of making excellent content that suits the needs of every business especially when it comes online financing. She can conceptualize and implement marketing plans, explores profitable B2B opportunities and then absorb Loan services. You can Visit us for more information.
