One of the most common types of financing that small businesses obtain is a business loan from the Small Business Administration. The SBA is a government agency designed to assist small business owners in obtaining the funding they need to start or expand their business ventures. In order to qualify for this funding, a business owner must demonstrate that they will employ ten percent or more of the funds they receive for the business loan in operating costs. The company also has to demonstrate that it will create a ten thousand dollar or more profit for each year that the loan is in effect. This is a key factor in being considered for a business loan and can be a deciding factor in which bank the business is eligible to receive its financing from.
There are several ways to obtain a small business loan. Many banks require that the business have at least one employee and that the business will create a minimum amount of money each year. Some banks require that the business have a minimum sales amount as well as a minimum number of employees. Some banks require that the business be open for at least three months or the typical ninety days prior to applying for financing. It is important to remember that if you apply and are accepted for a small business loan, you will typically have to pay your business an application fee along with a twenty-one-day delinquency charge. In addition, the lender may require you to purchase insurance on all of your assets if you are unable to repay your debt.
Small business loans come in many different forms. One of the most popular forms is a secured small business loan. With this type of small business loan, a borrower secures the loan by guaranteeing payment of the loan if the business does not make a specified profit for a specified period of time. If the business makes less than the amount promised, the lender does not have to pay the money. However, if the business makes a profit, then the lender must pay back the entire loan. With this form of financing, you may also have to pay application fees and a business loan interest rate.
Unsecured small business loans do not require collateral to secure the loan. This makes them very attractive to borrowers because there is no risk involved. However, unsecured business loans usually come with a higher interest rate and a higher monthly payment. Because the lender does not have to worry about being paid back the entire amount, they usually offer a lower interest rate. Some companies offer small business loans with a one time application fee and minimal documentation requirements.
Before accepting any SBI business loan, it is important for you to comparison shop among the lenders that offer the financing. You can do this easily by visiting their websites and comparing the interest rates as well as the terms and conditions. It is also advisable to contact the banks with which you have an existing business relationship to inquire about their interest rate and loan terms. In general, small businesses often obtain SBI loans at better interest rates because of the relationship that they enjoy with their lenders.
While applying for SBI business loans, you need to show potential lenders that your business has sufficient earning capacity to sustain the interest rates being offered. A borrower's business prospectus will include a financial and investment analysis that will include the amount of money needed for start-up as well as the expected profit margin. To meet the requirements of lenders, your business plan also needs to be in detail. Along with the business loan amount, you will be required to provide the necessary certification to the lender that shows that . . . . . . your business qualifies for SBI loans.
An important point to remember is that even if your business qualifies for a bank loan, your credit history may affect the approval of the loan. If you have bad credit records, it may take you many months before you get approval for an SBI business loan. As such, it is important for you to plan beforehand how your business will perform during the recovery period when lenders will be less inclined to approve business loans. Be prepared to negotiate the interest rate further with the lender since they will have a lot of competition from SBI lenders. The interest rate can be lowered further by bringing down the purchase price of your assets or trimming down the number of assets you can purchase under the business loan.
The best thing for borrowers to do is to carefully shop around before applying for SBI business loans. Compare the interest rates and terms of different lenders. You can use the Internet to search for lenders or you can go to your local bank and ask for their assistance. Most banks offer online applications for SBI business loans as well, so you may not need to personally visit the lender in your area. After all, your business might have already obtained an approval from a lender outside your area.