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A Newbie Entrepreneur’s Guide To SMB Loans

A Newbie Entrepreneur’s Guide To SMB Loans

Do you need funds to purchase essential equipment or machinery? Do you need extra capital to launch a startup or franchise? How about additional cash to refinance your debts and support your everyday operations? If you do, a small business loan may help you.

A small business loan (SMB) is granted to startups and small businesses to help them purchase expensive machinery, improve cash flow, and achieve growth. Also, it’s a great alternative to credit cards and banks that often require a stellar credit score. It has low-interest rates and doesn’t require many requirements (e.g., a high credit score).

In addition, ‘SMB loans’ are an umbrella term that refers to various financing solutions, from invoice factoring to lines of credit and beyond. Moreover, is a small business loan installment or revolving? It depends on the loan you wish to apply for. Since both have pros and cons, it’s best to ask your provider which suits your needs best.

Before you shop for an SMB loan, ask yourself the following questions: How much do you need? How long will it take to pay? Where will you use it? If you need further knowledge, this post may help. Read on to learn more.

What Are The Types Of SMB Loans?

There are different types of SMB loans available, depending on the needs and preferences of your business. Below are the common SMB funding options to choose from:

  • SBA Loans

An SBA loan is granted by the Small Business Administration, hence the name. It’s a great financing option for startups and small businesses because it’s partly guaranteed by the government. How does it work?

The SBA establishes partnerships with credit unions, banks, and other lending institutions to offer startups and small businesses monetary aid. It acts as a guarantor between borrowers and lending institutions and provides assurance to lenders because it’s risky.

The SBA offers a range of plans that may suit the needs of your business (e.g., refinancing debts, purchasing property, buying inventory, etc.). The benefits of SBA loans include low-interest rates, flexibility, and simple payment plans.

However, keep in mind that SBA loans aren’t for everyone due to the strict application process that might require collaterals and credit checks.

  • Conventional Term Bank Loans

A term loan is a lump sum given to a borrower, provided that it must be repaid over a specific period—of course, it comes with interest. However, it’s not always the best choice for small businesses because it’s not designed as financial aid for small businesses.

Small businesses often get rejected because banks consider them a risky investment. Nevertheless, term bank loans are still a good option; others get approved but have to have a strong credit score and collateral (e.g., a property, equipment, or asset).

If you have what they need, your application might get approved, even if you’re a small business owner. However, it might not be your best option because, aside from the whopping interest rate, you need to pay the interest of the total lump sum even if you just need a part of it.

  • Business Credit Cards

Business credit cards might be better than loans because they’re convenient and useful when it comes to some purchases. You can use them to provide anything you need, as long as you don’t max it out.

Furthermore, applying for business credit cards doesn’t require collaterals or high credit scores. This makes a great option for small businesses looking for quick financing.

If you have a business credit card, make sure to stay within your credit limit to avoid additional charges. Since it functions like a typical credit card, use it wisely and responsibly and pay your dues in a timely manner to build a positive credit score.

  • Private Lenders

If you don’t have an impressive credit score, you may consider applying for a loan from a private lender. Although you don’t have a high credit ranking, you might still be able to qualify for a particular SMB loan.

In addition, private lenders offer a more flexible application process than traditional banks. Plus, they may consider many factors depending on the applicant.

Cartoon hand putting a coin into franchise store

What Do Lenders Consider To Approve Your Loan Application?

There are many factors lenders consider when reviewing a loan application. Some of the most common are the following:

  • Years In The Business

How long have you been in the industry? Lenders often ask this question to determine if you have the ability to pay them at the right time. The longer you have, the more likely your application will be approved.

  • Credit Score

This is one of the most important factors lenders consider before approving a loan application. Having a bad credit score doesn’t mean your loan won’t be approved, but it’ll surely affect the terms of your loan. The lower the score, the higher the interest rate.

  • Monthly Revenue

Lending institutions often ask how much money a business earns every month. They do this to determine if you can pay your loan dues in a timely manner. The higher the monthly income, the more comfortable lenders will provide you with a loan.

How To Get An SMB Loan?

Here’s a step-by-step process when applying for an SMB loan:

  1. Determine How Much You Need

Before you seek a lender, determine how much money you need and why you need it. It’d be best not to borrow too much to minimize interest rates. After all, nobody wants to pay for something they don’t even need.

  1. Consult A Financing Institution

Meet up with a financial expert who’s knowledgeable about small business loans. They can help you understand the process, including the interest rate that fits your needs. Also, they can assess whether you can pay your loan on time.

  1. Submit The Requirements

Each bank or lender requires different requirements. Usually, you’ll be asked to submit financial statements, collateral, income tax returns, loan application history (if possible), and credit history. Requirements will be listed in your application form.

  1. Agree To The Loan Terms

If your loan application is approved, read the terms and conditions offered by the lender. Make sure to understand every word it says, including the interest rate, loan amount, and payment schedules. After that, wait for your loan and put it to good use right away.

Final Thoughts

The main purpose of SMB loans is to help startups and small businesses keep their finances in shape. It provides extra funds to refinance debts, facilitate everyday business operations, and purchase expensive equipment. If you need a loan, ask a private lender or local bank for offers that suit your needs.


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