Small business loans can be difficult to find. There are lenders eager to approve business loans for all sorts of reasons. Lenders often want to know that your company is established and has a history of paying back loans. They also like to see how you intend on using the funds you receive under the loan. It is often a good idea to have a complete financial overview available when you approach a lender about obtaining small business loans.
Small business loans come in many forms. You can get loans from traditional lenders such as banks, credit unions, private lenders, or government organizations. Small business lending refers to the way in which an individual or aspiring business owner obtain funds to start a new business, buy an existing business or increase capital to support future business activities. Small business loans are also sometimes referred to as loans or government small business loans.
One option for obtaining small business loans is to apply for a small business line of credit. A small business line of credit (also known as a SBLC) is a revolving credit line that you can use to make payments on a monthly basis. Unlike a traditional small business loan, the interest rate on a SBLC is often lower than that of a traditional small business loan because SBLCs do not require repayment at any time. As long as you make your payments on time, you will not be charged interest on your outstanding balance. Your company's credit limit may be limited, however, so you should only apply for a small business line of credit that will allow you to expand your company.
You may also want to consider obtaining small business loans through the SBA (Small Business Administration). The SBA administers loans to help small businesses achieve success and build their market share. To get approved for SBA loans, you will need to meet a few requirements including your personal and business income statements, copies of your tax returns, a letter from your bank or your SBA representative outlining your personal and business financial circumstances, and a complete financial report that details your debts and assets. If you have not previously been involved in financing, the SBA may require you to undergo credit counseling before being approved for small business loans. Be aware, however, that the SBA charges high interest rates for these loans and you may not be able to obtain the financing you need.
Your final option for securing small business loans is to obtain unsecured financing. Unsecured financing is available to both established and start-up companies, but there are many restrictions and fees that you must comply with. Unsecured financing is often referred to as “pass-through” financing because it does not require you to provide any type of collateral or commitment before receiving approval from the lenders. However, the SBA (Small Business Administration) will require you to meet a credit quality test and to submit financial reports that demonstrate your ability to repay the loan. The SBA evaluates your ability to repay by reviewing your credit history, the amount of debt you are carrying, and your ability to make your monthly payments. If you are unable to meet these criteria, your application for unsecured small business loans will . . . . . . be denied.
Most lenders want you to develop a detailed business plan. This will help you to show them why you can meet all of your obligations by providing an accurate and comprehensive business plan. The more information you provide the lenders, the more likely you will get approved for small business loans.