Money is to business like oxygen is to fire. Even for a business that has a sound plan, a developing customer base and a successful marketing campaign, long-term success is not guaranteed. While 18 percent of small businesses fail within the first year, 50 percent fail after five years and 65 percent by their tenth year in business. You shouldn’t fret too much, though, because there are lots of ways to secure the financing that you need to keep the proverbial doors open and to keep your business in the black. By securing funding through a small business loan, businesses can improve their chances of long-term success and achieve their goals.
SBA Loan
The SBA is the Small Business Administration and it is wholly dedicated to providing small businesses with counseling, contracting expertise and other resources that can help to maintain and grow, including financing. The distinction between SBA loans and other types is that the SBA doesn’t actually loan the money. Rather, it guarantees the lender that the capital that has been borrowed will be paid back.
In most scenarios, the SBA will guarantee up to 85 percent of loans that are $150,000 or less and 75 percent of loans above this threshold. This can sometimes be enough to compel a bank or credit union to review an application; such is the virtue of a guarantee. However, even though SBA loans aim to help those folks who can’t qualify for traditional bank loans, there are still stringent qualifications that must be met, including strong business financials, a strong business plan and a solid credit history.
Term Loan
A business term loan is any amount of money that is borrowed from a lender which is paid back at fixed intervals, with interest, over a predetermined amount of time and this money can be used for any personal or business expenses. Typically, you can borrow several hundred thousand dollars with a term loan and there are a variety of lenders offering them, including banks, credit unions and online lenders.
There are three types of term loans: short-term, intermediate-term and long-term. Term loans generally don’t extend beyond 96 months, and the interest rates on term loans can be either fixed or variable. Borrowers prefer them because of the flexible repayment terms that they offer, as well as lower interest rates, compared to other types of loans. Reasons for obtaining a term loan might include planning a long-term business expansion or investing in remodeling or renovating commercial space.
Business Lines of Credit
A business line of credit differs from a traditional loan in that the borrower is not given a lump sum of capital. Instead, it allows the business to borrow an established amount of money and only charges interest on the money that was borrowed. It’s a great choice for businesses that are experiencing cash flow gaps or emergencies.
There are both fixed and revolving lines of business credit. In a revolving credit line, the credit line resets after the balance is paid in full. Lines of credit can be obtained through a number of lenders, including traditional banks and online lenders specializing in unsecured business loans. Banks typically offer the best interest rates and the longest time between renewals. Businesses that can’t yet prove their bona fides or don’t have stellar credit would likely benefit from choosing an online lender, who has different standards and restrictions than a bank. Lines of credit can be used for covering occasional cash flow droughts, paying for recurring operating expenses or for emergencies.
Microloans
Microloans are a great potential tool for small businesses and they encourage entrepreneurship. They are designed for businesses that need $50,000 or less in financing. Most come from nonprofit lenders, who provide capital to young businesses because they want to help underserved communities and provide a boost to the local economy. They are well-suited for businesses that are owned by women and minorities, who traditionally might struggle to get the proper representation. Microloans are perfect for startup costs, working capital or expansion needs.
Financial solvency – the ability of businesses to meet their long-term debts and financial other obligations – is what all businesses strive for but it is tremendously difficult to maintain. Thus the discouraging business success statistics. There are loan options that cover the various financial needs that businesses might have. The trick is presenting a well-written business plan and convincing the people across the desk that you represent a sound and reliable investment of their resources.