Small business owners need ambition and determination to succeed. Unfortunately, these entrepreneurial qualities are no guarantee of the swift funding a company needs to maintain its course toward long-term success.
Loans to businesses are a popular choice for obtaining the money they need. To apply for small business loans or not is a serious decision that should not be made lightly by any business owner.
Why you Consider a Business Loan
To succeed in business, it takes more than sheer determination and hard work. In addition, financial resources are required. Small business entrepreneurs often turn to loans to fuel their operations when they are short on cash.
In fact, the US Small Business Administration (SBA) reports that over 61,000 loans were given out to small business owners in the 2021 fiscal year.
Not sure if a loan is for you? Here are a few telltale signs that you should consider one:
- Expensive equipment costs: It’s common for companies to take out loans in order to finance the purchase of costly machinery used in the production process.
- Advertising fees: Advertising is necessary for every small business, but it gets expensive fast. You may need a bank loan or business credit card to help pay for fees.
- Poor cash flow: Money for inventory or regular expenses can be tough to come by, but a loan could help.
- Emergency funds: The unexpected can always occur, such as equipment failures or natural disasters. To keep your business running during these times, a loan may be helpful.
- Hiring: Strong team players contribute to your company’s culture, operations, and success—they can also be expensive. A loan can help you hire the right people that help grow your business.
Steps to Getting a Small Business Loan
Write a business plan
It is rare for private lenders offering more conventional business loans to even consider an application without a thorough business plan. A potential lender will have a difficult time gauging the business viability of your project without one.
Online lenders have proliferated in recent years, and many of them no longer demand formal business plans as part of the loan application process.
Calculate how much you need
Determine how much money you need with a loan calculator before applying for a business loan. Determine your reason for seeking a business loan to answer this question.
There are primarily three reasons why American companies get loans, as determined by the Federal Reserve Bank of New York:
- Acquiring New Customers (64 percent)
- Expenses for Running the Business (45 percent)
- To restructure a loan (45 percent)
It’s important to factor in expenses that can’t be avoided when calculating the total amount of money your business will need. Even if it costs around $95,000 to outfit a commercial kitchen with all the necessary appliances, you still might want to consider a few other options.
- Funding for repairs
- Assurance Businesses
- Investment on necessary utilities
It can be easy to get caught up in the initial purchase price of new hardware, but there are other factors to think about as well. This is especially relevant for enterprises in low-margin sectors like the food service industry, where it may take longer to break even, as it has a direct bearing on the borrower’s capacity to meet repayment commitments.
Consult a financial advisor
Before deciding on a loan, it is wise to consult a financial advisor. They’ll know what kinds of lending programs are available from which banks. Therefore, they will be able to give you more tailored recommendations for the best financing choices for your business, as well as assist you in developing a strategy to repay any debt you incur and maintain long-term profitability.
Choose a Loan Type
After deciding to apply for a business loan, you will need to determine the type of financing that is most appropriate for your company and its plans for expansion. There is a wide variety of options for loans for businesses, and they all have their benefits.
Options Besides an SBA Loan
Small business loans fund wages, inventory, equipment, commercial real estate, and other needs. Here are some alternatives to an SBA loan.
BlueVine
Only business checking and credit lines. A line of credit might give your small business rapid capital you can keep using. BlueVine lines of credit have high APRs (above 70% according to some sources) and need weekly or monthly payments, so if your income varies, you may want to investigate another choice.
Lendio
Provides many loan choices. Not all lenders offer startup loans, which can help create a new firm. Lendio offers startup loans for up to $750,000, 25 years, and 0% to 17% APR.
The Bottom Line
Borrowing money for your business is a serious matter that requires careful consideration. There are plenty of options available, so take the time to choose the one that is right for your business.
