4 Things to Look Out for When Getting a Small Business Loan

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Four Things to Look Out for When Getting a Small Business Loan

You own a small business and you need extra financing — it’s a tale as old as time. You want to secure a business loan fast, easily, and with no personal guarantees involved.

You don’t have a great credit score and you don’t want to go through the trouble of justifying your expenses with an elaborate business plan. Basically, you would like to benefit from a type of flexibility that one-size-fits-all types of loans cannot provide.

What You Need to Do to Get a Good Business Loan

Whenever you need capital — to expand, to keep operating, or to weather a storm — small business loans have the benefit of speed, transparency, and simplicity that more traditional financing options just cannot provide. 

In many cases, all you have to do is fill in a short online form and a financial specialist will get back to you within 24 hours. A brief conversation is all it takes for them to assess your business needs and your general financial situation. 

After that, you will generally receive a personalized offer and the possibility to sign everything online or at a nearby branch. Within a few days the much-needed funds will land in your business account and you’ll be all set.

What to Avoid When Searching for a Small Business Loan

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To make sure you navigate safely through the abundance of financial information out there and make an informed choice, you must first be aware of the potential traps of small business financing.

1. Avoid middlemen and third party involvement

With nobody earning a commission on your financing deal, you can pay significantly less and, by not involving third parties in the lending decision, the entire process can happen much more quickly.

You should also make sure your information is not shared with anyone else, as security should always be a priority for you, both as an individual and as a business owner.

2. Avoid excessive automation

Technology helps speed up things and cut down costs, but it can also become a burden for customers who need human interaction. As a small business owner looking for a cash advance or an online loan, being able to get in touch with an actual specialist is important, instead of just ticking boxes in a rigid form.

Unfortunately, many online lenders tend to overly automate their flows, not taking into account that small businesses have different needs and they are all unique.

3. Avoid lengthy processes and predefined offers

Getting a loan from a bank is likely to give any small business owner a headache. Not only does it take months to get through the entire approval process, but a lot of paperwork is involved as well. In the end, you are the one who has to fit their requirements, instead of the other way around. 

What you should do is opt for tailored solutions from reputable direct lenders and enjoy that extra flexibility and speed of loans for businesses with no credit.

4. Avoid predatory techniques

Stay clear of confessions of judgment and other similar tactics that prey on small business owners. Also, make sure that you can pay your balance early without penalties — there are companies that unfortunately incur them. 

In fact, it’s even better if you can get early payment discounts mentioned in your contract.

Final Small Business Loan Insights

In order to access a fast and convenient financing solution, you generally need to have been in business for at least 6 months and prove monthly sales of $10,000 or more. 

Now that you know what to avoid when looking for a small business loan so that you can fully benefit from them, get ready to take your business to the next level.

 

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When Is The Right Time To Take Out A Business Loan?

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The Right Time To Take Out A Business Loan

A business loan will have to be taken out by companies at some point in their existence. Both newly formed entities and established companies may apply for business financing in traditional and unconventional lending institutions.

Their reasons for doing so may vary, but one thing is sure: organizations need a fund boost whether they’re just starting or are doing well. But how does an entrepreneur know that it’s time to go for that option? Read on to find out the most compelling reasons to take out a business loan.

  • When You Are Starting A Venture

Getting everything up and running for the first time is one of the most significant investments at any stage of the venture. To open a business, an entrepreneur must make big-ticket purchases such as office equipment, build up the inventory, and pay for an office lease. This move is crucial when you’re still wondering whether your business will generate income or not.

Some lending companies offer business loans to startups. Look for such types of business financing products to ensure you’re getting the most out of the transaction. Before submitting an application for a business loan, make sure to shop around for the lowest rates.

  • When You Need To Start Building Your Credit History

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As with a personal loan, a borrower has to have a good credit history to get approved for a business loan. Suppose you want to increase your chances of gaining access to more substantial loan amounts down the road. While you should practice caution in borrowing for business and personal reasons, you can take the first step as a business borrower by taking the plunge.

You have to be confident in your repayment capacity before applying for a business loan, though. Consistent and timely payments will help build your credit score. With an excellent credit reputation, your business can secure higher amounts to spend for business expansion.

  • When Expanding Your Business 

If your business is doing well and you want to seize the opportunity to be present in other locations, why not expand? Like starting fresh, a business will have to spend significant amounts to look for a new space, market the company to create brand awareness, and train and hire new staff.

Opening a branch in another city may be a good reason to take out a loan to kick-start your operations. Because of the hefty costs involved in this activity, you can seek the help of banks and lending companies to prevent business failure. Access to additional funding could provide your enterprise with the right tools and resources to carry out a successful launch.

Business expansion can also mean spending for human resources, which entails equally significant expenditures. Hiring, training, and keeping your staff is one of the most important investments you can make in your business.

  • When Purchasing Equipment Or Inventory

Apart from opening another branch, your venture may need to use new pieces of equipment or a more technologically advanced machine. As any business owner would know, this would involve high out-of-pocket costs that your business might not be able to accommodate at once. In this case, a business loan will help you get what your company needs.

Depending on the bank, the amount needed, and your qualifications, this type of business loan may be unsecured or secured. For secured business loans, you need to put up collateral—a house, a vehicle, or any other valuable property—before accessing the funds.

For this reason, you must only consider purchasing business assets that provide overall efficiency and productivity in your manufacturing and other operations. With a new piece of equipment or added inventory, you can serve your customers better.

  • When You Need To Prioritize Research And Development

Creating a breakthrough product requires several workforce hours spent on research and development. The staff will also have to get the resources they need to perfect the product through multiple rounds of trial and error. If you want to stay competitive in the business, you have to offer products and services that stand out from the rest.

Taking out a business loan can help you fund research and development projects. A revolutionary product and service can help your company broaden its customer base. By allocating a particular budget for these activities, your business will become the first choice in your niche, allowing you to stay relevant for a long time.

  • When You Want To Cushion The Impact Of A Slow Season

Some businesses rely on a particular season to perk up their sales or cash inflow. For instance, companies that provide lawn care, snow removal, and tax preparations often see their coffers filled during the summer, winter, and tax filing seasons, respectively.

A business loan may reduce the impact of a slow period and ensure robust cash inflow. Borrowing for your business may be better than offering rock-bottom prices for your products and services or letting go of helpful staff, which can impact your prices once the peak season arrives. Practice prudence and only borrow a modest amount to ensure timely repayments and avoid hurting your credit score.

  • When You Need To Offset Emergency Losses

Organizations must have an emergency plan to handle significant losses from emergencies. Ideally, this plan should include building an emergency fund for unexpected situations. However, not many small businesses are capable of collecting enough cash to tide them through rough times.

Business loans can be used to infuse additional funds when disaster strikes. Include a business loan in your business continuity plan to rebuild or recover faster. Circumstances such as a significant cyberattack, massive typhoon, and flooding may wreck your business assets, rendering them useless. While you may be able to claim a certain amount from your insurance, it’s an equally good idea to access more funding from lending institutions.

Often, the government will offer low-interest loans to individuals and businesses affected by a major calamity, so keep your eyes peeled for these offers. Otherwise, look for traditional and online lenders to help you out during a challenging period. Just check the loan terms to make sure you can manage repayments appropriately.

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Final Thoughts on Taking Out a Business Loan

Knowing when to take out a loan requires considering several factors: the current economic situation, your business financial status, and your purpose in asking for additional funds.

Apply for a loan only when you’re comfortable about your repayment capacity. Hence, seeking out a loan must be done to institute positive changes that are expected to drive more income.

In closing, remember that the process of shopping around and getting assessed and approved takes time. Therefore, you need to ensure you still have enough money for your daily operations until you get the loan you’re applying for.

 

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