Such situations come to the life of every businessman or entrepreneur that they are in need of some extra fund to run their business. During such tough times of your business, you may require a business loan, be it small or large. However, most of the business men prefer the small business loan as a convenient and easy to use tool to come over those tough times. At that time, people will be having certain questions in mind such as How to get a business loan? Or how long will it take for the person to pay back the loan? Or how quickly can a person get the loan? Or what is the current financial status of the business? Or how much and what will be the collateral required? Etc. The answer to all your queries is here.
Let us first understand what are Small Business Administration Loans:
A small business loan is an effective tool for business funding. The small businesses or start-ups take the finances from financial institutions or banks to meet the financial requirements under the small business administration loans that are popularly known as SBAs. The SBAs provide the wide range of diversified loan programs to meet the different kinds of requirements of the business. There are a variety of such programs available such as specialized government small business loans, small business loans specifically designed for women, and many more. The SBA has various parameters on how the fund or money can be utilized and what is the tenure on which the loan can be repaid.
The best part about the SBA is that the same involves the minimum amount of the risk for the lender and thus, the same is pretty favorable to the borrowers as far as terms and conditions are concerned. However, the same requires a lot of paperwork, which includes additional documentation as well. Also, it has some extra fees & charges to be paid as well and the same requires longer getting the approval than usual.
Conventional Bank Loans:
Along with SBA, the banks offer conventional bank loans as well. The biggest advantage of the conventional bank loans is that the business loan rates are lower. Additionally, the approval and sanctioning of the loan process is faster, but at the same time, it is relatively difficult to get the conventional loan approved. These loans include shorter repayment time than the SBA loans.
Alternative lenders are more attractive to the borrowers as they do not have the stringent sanctioning requirements. They provide the loan even to the companies, which do not have significant financial history or great credit scores. The loan also, is provided at the instant approval. However, the interest rates are charged at a relatively higher rate.
Here, we are providing some guidelines and frequently asked questions along with answers that may arise in the borrower’s mind, while opting for the small business loans.
- How to find the best suitable lender?
The borrower has to carefully do an assessment and analyze the situation in order to choose the suitable lender. The borrower has to keep the situation, needs and pertaining criteria in the mind, and accordingly chose the best option as far as lenders is concerned or whichever is suitable.
- What is the documentation that is required, while applying for the SBA loan?
While you are applying for the small business loan, the bank or financial institution or the lender will ask for certain information as well as the documentation to sanction the loan. The list of the same can be mentioned as follows:-
- Personal Background of the owners
- Income Tax Returns
- Business Statements or Financial Statements
- Profit & loss statements of the last 3 years
- License or Business Certification
- Financial credit history
- Business lease
- Business history& overview
- Business Affiliations
- Projected financial growth
- Business Plan
- What are the questions that are expected, while applying for the SBA Loan?
These are the list of questions that may be asked while applying for the SBA loans.
- What is the purpose behind applying for this loan?
- How will you repay the loan?
- Who are the various suppliers of the business?
- Who are the creditors associated with your business?
- Who are the members of your management team and what is their background?
- Do you have any other debts?
- From where can the application of the SBA loan be made?
The SBA loan applications are available on the SBA website. You can apply for the loan, by choosing any, online and offline modes.
- What are the required things, while applying for the conventional bank loans?
When a person applies for the conventional bank loans, he or she is supposed to submit the financial details that include the financial history of the company, financial background, future projection as far as growth plans are concerned and also the personal financial details of the owner and management team. The more information the borrower provides, the more confidence the bank has as far as the sanctioning of the loan is concerned. The same gives the sense of security to the lender as far as repayment of the loan is concerned. Also, the proper justification with respect to loan amount is equally needed while applying for the conventional bank loan.
- What are things that are to be considered, while applying for the loan from an alternative lender?
There are several different factors that are to be considered, while applying for the loan from the alternative lender.
Rate of interest:– It is advisable to check the Rate of interest that is being charge. The alternative lender usually charges higher interest rates. Hence, the borrower should always check that the same is affordable and payable or not.
Policies and Charges:- The borrower has to carefully evaluate the terms and conditions along with various fees & charges that are being imposed on the borrower. The same impacts the repayment of the cash flow of the loan. So, it is advisable for the borrower to double check all such policies, processes, rules, charges, fees etc. because the same shall give the clear picture on the financial aspects of the business are concerned.
The lender’s reviews:- there are various institutions and companies available in the market which claims to be the alternative lenders. However, it is essential for the borrower to check the credibility of the lender
- What is the information which has to be provided to the alternative lenders, while applying for the small loan?
It is relatively easy to avail the loan from the alternative lender. But, still there are some documents that have to be provided during the procedure such as business, financial and personal information. Some of the alternative lenders also ask for the credit ratings, credit history and CIBIL score.
- Which are the factors that are considered by the alternative lenders to decide whether to approve or reject the loan?
There are various factors and parameters considered by the alternative lenders, when it comes to approve or reject the loan. The same can be mentioned as follows.
Credit History:– The credit history and credit scores are the important factors that play a role when it comes to sanctioning a business startup loan. If a business man has a good track record in terms of credit rating, then it becomes easier for the person to get the loan approved. However, if the credit score is not up to the mark, then there are less chances of the approval of the loan.
Revenue of the business:- This is the most important aspect that lenders keep in mind. The lenders pay special attention to the monthly revenue part, because the lenders want to ensure that whether the business will be able to repay the monthly installment or not. If the cash flow is appropriate, then the chances of the loan sanction get higher and vis-à-vis.
Business History:– if the business is old in the market, the lenders feel more comfortable to issue the loan. The longer track record of the business gives a confidence to the lenders.
Other factors:- other factors such as tax returns, financial statements, sufficient collaterals etc. also play a considerable role when it comes to providing the loan.
- What are the application fees?
The application fees, whether to charge or not, depends on the lender. The same differs from lender to lender. Also, the other charges such as processing fees etc also depend on the lender to lender.
- What are the important factors while choosing a small business loan?
The businessman has to first, look into the matter that what is the exact requirement of the finance and how much amount is actually needed according to the operations and needs of the business. Also, the rate of return the company will start earning has to be ensured. If the need of the finances is not high then the options like micro loan etc. are suitable. Also, options such as, working capital loans are designed to meet the short term requirements of the business. There are options such as franchisee startup, merchant cash advance etc are made for the respective urgent requirements.