What is a Small Business Loan?
A Small Business Loan is a system of financing by which a business owner takes credit to obtain money to start a new business or to purchase an already existing small business.
There are many ways to finance a new business and one of them is to take a credit facility. This is provided by many financial institutions with different kinds of features.
The government also provides aid for these small business dealers in creating their funding.
Elements of a Small Business Loan
- Down payment
Down payment is the sum of money the borrower should pay towards the project. It is represented as a percentage of the cost of the project.
- Loan terms
The terms and conditions of a loan are important to ensure the needs of the borrower regarding the rate of interest and the period of repayment.
It also indicates the credit limit of any business for which they can take a loan from the financial institution.
- Loan tenure
Tenure of a loan is the period during which a loan taken has to be repaid along with the agreed amount of interest.
Loan tenure is an important element in a loan agreement that depends on the credit history of the applicant and the terms of the lender.
- Rate of interest
The rate of interest for a loan is fixed as per the terms of the lender. A lesser rate of interest is more beneficial to the borrower.
The interest rate also depends on the income and the credit history of an individual to analyze the repayment capacity.
- Personal guarantees
The borrower can choose to agree, about the business, to be completely responsible for repaying the total loan amount.
- Financial assistance
A Small Business Loan acts as financial assistance to meet different kinds of expenses like operation expenses, or equipment expenses etc.
Essentials to apply for a Small Business Loan
To take a Small Business Loan, there are many essentials required. Those include:
- Bank statements
- Annual revenue of the business
- Credit Score
- Time in business
- Purpose of the loan
- Tax returns
- Collateral is a security
- Legal documents relevant to business
- Personal background
- Business plan
Features of Small Business Loans
Many businesses in their initial stage, find it difficult to meet the business expenses. That is the reason they might fail to survive in the business as they do not have sufficient funds.
To help in this matter, the government and many other financial institutions provide loans to these small businesses as financial support.
- Flexi loans
Flexi loans are the initiative introduced by a few banks to offer business funding with the advantage of great flexibility.
These loans offer the business owners the to withdraw funds according to their requirements and repay the loan amount as per their cash flow.
- Unsecured funding
Some banks provide loans without any collateral security. Though there is not much reason to trust a start-up and small businesses that they will repay, an unsecured loan can be provided to small businesses.
This gives a benefit to many small businesses to get funding for the amount that they were unable to get through a conventional business loan.
- Online assessment
Many business loans can be accessed online directly by the applicant. Any sort of government business funding scheme can also be accessed online.
It gives an advantage to the business owners from the hassle of visiting the banks and various government offices.
- Acts as a working capital
A Small Business Loan acts as working capital as it can be used to meet the regular operating expenses.
Benefits of a Small Business Loan
- Small Business Loans are flexible.
- Repayment convenience
- They have low-Interest Rates
- Easy availability
- Grow your business
- Tax benefits include personal and business tax.
Types of Small Business Loan
- Startup loan
A startup loan helps you get the required capital to meet the basic expenses like office space leasing, inventory building, purchasing of equipment, hiring and training the staff, and also covering the regular expenses.
- Short term loan
Many of the entrepreneurs use the amount on short term loans for the times when they need immediate solutions for certain pressing circumstances.
The requirements of qualifications are not so much for these types of Small Business Loans. If you have a good credit history and have also been in business for at least a couple of years, you will be in a good shape.
- Business term loan
Taking up a business term loan is the best way to acquire working capital, expand your business operations, purchase the required equipment, hire additional staff, and what other expenses are there.
This is the most popular type of financing for entrepreneurs for many decades.
- Business credit card
A business credit card is a type of credit card issued to finance small businesses. This is the most user-friendly type of business financing.
This option can be excellent for those who do not feel ready to take up a business loan or those who have been repeatedly turned down for them previously.
- Equipment financing
In equipment financing, the funding is given for the purchase of equipment required for the business.
It can also be used for less obvious equipment like payment processing programs, solar panels, or even accounting software for your office.
- Business acquisition loan
A business acquisition loan is one type of small business loan made specifically for a specific purpose like buying an existing business or a franchise.
Getting this loan can give a benefit to your business in taking a great step for a functional business without starting it from the beginning.
- SBA loan
SBA means the Small Business Administration. This is an agency that helps small businesses to find the resources they need for funding they need.
They are not a lender but guarantee a substantial portion of each loan reducing the other lender’s risk and making them more willing to accept your request.
There are many options available to avail the chance of loan amounts for their funding. It is important to choose the loan which is most beneficial to carry on to meet different kinds of expenses.