How to get a small business loan in 2021
- 1 How to get a small business loan in 2021
- 1.1 Where to get a small business loan
- 1.2 Types of small business loans
- 1.3 How to apply for a small business loan
- 1.4 Alternatives to small business loans
How to get a small business loan in 2021
Sometimes it takes money to make money. It sounds tacky, but it is true in the business world. When you run a small business, the extra cash on hand really comes in handy. Whether you want some start-up capital to advance your work, or you need a little help to pay your salary while overcoming temporary challenges, Small business loan Can help you complete your work. Let’s dive into how to get a small business loan, where to find it, and what your alternatives might look like.
Where to get a small business loan
If you are not sure where to start when looking for a small business loan for the first time, there are a few different methods you can use. Small business loans are usually available from banks and credit unions, as well as online lenders or alternative lenders. Each of these sources may have different products and requirements, so let’s take a look at what you can usually expect when dealing with each source.
Banks and credit unions
The same financial institution where you conduct personal banking may provide small business loans. Of course, you can also view content outside of the usual banks or credit unions. However, if you have a good reputation in the personal account of the bank, it may be beneficial to you when applying for a small business loan. Banks and credit unions tend to provide services to larger and more mature businesses, but this does not mean that small businesses are not suitable for these categories.In particular, if the bank or credit union has loans backed by the Small Business Association of America (SBA)-these are called SBA loan. SBA-backed loans reduce the lender’s risk, so it can make it easier for new small businesses to obtain loans.
Online and alternative lenders
Nowadays, you don’t have to stick to traditional financing methods. Online lenders and alternative lenders (such as P2P lenders) can offer products similar to banks or credit unions, they just do so without providing face-to-face visits to customers. If you prefer to do your banking in person, then online lenders may not be the most suitable. However, many online lenders offer greater flexibility than physical banks, which are ideal for starting new businesses. There are also peer-to-peer small business lenders that you can find online, where you can connect with investors who want to support small businesses. When working with large banks or credit unions, the standards for peer-to-peer loans are usually not so strict, but because the lender’s risk level may be high, your interest rate may be higher than that of a traditional commercial loan.
Types of small business loans
You can use several types of small business loans. Each has its unique advantages and disadvantages, so you need to carefully consider which type is best for your business.
Commercial Credit Line
The working principle of a commercial credit line is similar to that of a credit card. You can use it to make purchases for your business, such as reserve inventory or pay for advertising. This form of credit comes with a maximum limit that you can borrow. If you do not borrow in full, you will not pay interest on any unborrowed funds.
Commercial Term Loan
Commercial term loans provide borrowers with a one-time, fixed term and repayment amount. Payment will include interest and principal payment.
Some small businesses are struggling with cash flow while waiting to pay their invoices. If this is your problem, invoice financing (also known as factoring) can help you sell unpaid invoices to lenders at a discounted price.
Merchant cash advance
Merchant cash advances provide borrowers with a one-time payment based on their forecasted future sales. This form of financing usually charges high fees and may reduce your sales daily or weekly.
How to apply for a small business loan
The application process for a small business loan varies from lender to lender, but usually you may need to provide the following supporting documents during the application process.
- Information about your personal background
- business plan
- Income tax returns for the past two years or more
- Documents related to any past and current business loans
- Personal and corporate bank account statements for at least 12 months
- Documents supporting the cost and value of any personal or commercial property that you may want to use to secure the loan
- How do you plan to use the loan
- Debt schedule
- Legal documents, such as: permits, leases, articles of incorporation and contracts
The lender may also wish to conduct a credit check during the application process. Your credit history and score will affect how easy it is for you to get a loan, as well as the loan amount, interest rate and repayment terms you get.
Your personal credit score is likely to be evaluated, especially when you start a new business, but if you have a commercial credit score, it may also be taken into account. There is no set of minimum credit scores that require you to get a loan, but generally the higher your credit score, the better interest rates and terms you get.
If your credit score is low, get Guaranteed Commercial Loan It may be an easier path because the lender will have your collateral to help reduce their risk level.
Alternatives to small business loans
If you feel that small business loans are not appropriate, entrepreneurs have other options.
Alternative online financing
Fund box Provide approved business owners with the funds needed to support their business, whether by buying equipment, paying bills, or overcoming cash flow gaps.
Business credit card
Some commercial credit cards offer low interest rates or 0% introductory interest rates, which can provide small business owners with a variety of low-interest or interest-free loans. Many card issuers provide six months of interest-free service. If you can pay off your purchase before the introductory interest rate ends and the higher interest rate begins, a commercial credit card is just a good financing option.
In 2021, given the coronavirus pandemic, small businesses seeking financing help will have some unique options. One option is PPP loans.This Payroll Protection Plan (PPP) It is a loan provided by SBA to help small business owners and non-profit enterprises maintain their workers’ employment during this difficult period. Currently, you can apply for a PPP loan before May 31, 2021.