Small Business Loan Information |
There are many reasons why a small business may need capital funding. Startups typically need operating capital, funds for incorporation or other organizational costs, product development and marketing. Established small businesses may be looking at expanding their operations, making a new equipment purchase or a real estate acquisition, or they might need an injection of seasonal or short-term operating capital to cover unforeseen expenses.
Banks are an well-known source of small business loans. Local and national banks have a long and established history of supporting the financial well-being, growth and expansion of small businesses across the nation. Here are some of the funding alternatives available from banks.
A term, or conventional loan is the most common form of small business lending. Applying for a term loan from a local or national bank offers small business owners or entrepreneurs the means to get the cash needed to start, expand or fuel their growth. Just as the name implies, term loans are taken out for a specific length of time, or term. They can carry a fixed or floating interest rate and are set on a specified repayment schedule over the life of the loan. Payments are often scheduled monthly, but depending on the details of the loan agreement they could be made quarterly, or in some cases, annually. Most term loans require some form of collateral, so they are often tied to a newly purchased asset or existing assets of a business. Term loans fall into three basic categories: short-term, intermediate and long-term.
The Small Business Administration (SBA) offers programs that are specifically designed to meet a wide range of small business funding needs. Generally, the SBA does not originate the loans; the financing that it guarantees is provided by approved and certified traditional lenders such as private-sector banks, credit unions, community development banks and other financial institutions. Each of the loan programs offered by the SBA has specific guidelines, qualifying criteria, and borrowing limits.
The 7(a) Loan Program is the Small Business Administration's primary platform for startups and existing businesses to access growth capital. The program is specifically designed to meet the needs of businesses that can't qualify for other types of traditional small business funding. If you've tried to arrange conventional financing for your startup or existing business without success, the flexible qualification requirements and the variety of available 7(a) loans could provide the answer.
The Small Business Administration guarantees a range of small business loans that are specifically targeted to different funding needs. One of these is the CDC/504 program that offers owners and entrepreneurs a means of financing small business fixed asset acquisitions. In this program, the SBA works through Certified Development Companies (CDCs) - there are over 260 of these private, not-for-profit entities across the nation. Each is responsible for promoting small business growth and economic development within its defined geographic area. A CDC essentially acts a go-between; working with the SBA and local commercial lenders to help qualifying small businesses obtain capital funding. If you've met with dead ends in your search for the money you need to expand operations and grow your small business, you may find that the CDC/504 program is the ideal source.
One of the innovative financing options available through the Small Business Administration is the microloan program. The SBA developed the small business funding program to help entrepreneurs and existing owners access startup or growth capital. This form of small business lending is available to almost any type of enterprise, but a microloan is especially useful to those owners who have limited credit history, as well as minorities, women and low-income business owners or entrepreneurs. For startups, young or established businesses located in an urban center, a small city or in a rural area, the SBA microloan program can offer a source of capital funding when the door is closed to other forms of conventional financing, or even other SBA-backed possibilities.
The Small Business Administration offers a number of loan programs that are targeted toward financing small business expansion and growth that doesn't qualify for traditional lending. Each of these programs has its own unique criteria and application process, but there are general guidelines that every potential SBA borrower should follow before signing a completed SBA application.
Business credit cards offer an easy application process, especially in comparison to other types of credit. If used wisely, and paid off every billing cycle, a credit card lets a business owner use the bank's money as a form of interest-free borrowing. Credit cards offer an ideal way to build a repayment history in the name of a business, which can be used to show creditworthiness for other types of loans. On the downside, a credit card can carry significantly higher interest rates than any other form of small business lending, so an owner needs to use it carefully and avoid carrying a balance for any length of time. Business credit cards don't come with the dispute resolution or extended warranties that accompany consumer cards, and they are tied to the credit history of the business owner, so they should be used with the same care as personal credit cards.
Leasing the equipment your small business needs comes with a number of benefits in comparison to an outright purchase. When you lease equipment through your bank, you can take advantage of 100% financing. Many banks also let a business add on an extra percentage to cover soft costs such as freight, delivery and taxes.
Bank lines of credit are indispensable small business financing tools. Most banks across the nation offer lines of credit, and they give small businesses access to a ready source of capital funding for a multitude of purposes. A business line of credit is in essence a revolving source of operating or growth capital. Typically, it won't have set repayment terms and offers a floating interest rate that is directly tied to current market rates. A line of credit functions similar to a credit card, but with a much more reasonable applicable interest rate.
Throughout the life of a small business, it's not unusual to experience times when cash shortages occur. This can happen when a business is in the midst of purchasing or building new premises, after applying for a new loan or mortgage or when refinancing existing business debt. A bank bridge loan may offer the ideal solution to these types of short-term funding needs. A bridge loan performs just as the name implies; this short-term form of small business lending spans unexpected gaps in financing so that regular expenses are met and normal operations can continue without interruption.
Approximately 40% of small business owners use credit cards for day-to-day expenses or to access growth capital. Entrepreneurs often rely on credit cards when financing small business startups, while established owners may use a credit card for short-term funding needs instead of applying for small business loans. Perhaps you've considered applying for a bank credit card to expand your small business growth options, but found the sheer range of possibilities overwhelming - how do you know which credit card is the right one?
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