By Rohit Arora, CEO and co-founder, Biz2Credit
as a small business owner, you may find yourself in the corporate loan market for a variety of reasons. Maybe you're just starting your business and need an injection of cash to buy equipment. Or, perhaps you have had a slow quarter and needed money to pay employees. Best scenario, your company is so successful you need capital for expansion.
Whatever the reason, here's what you should know when shopping for lenders.
You can choose from many categories of lenders.
Big banks. small business owners often approach these lenders first. What you may not realize is that the big banks, which are classified as having more than $ 10 billion in assets, generally approve less than 25 percent of loan applications.
Small banks. These entities accord nearly half of the requests for funding and often push SBA loans, which are backed by the Small Business Administration. These loans are attractive, but because a government agency is involved, there is more paperwork involved, which can take time.
non-bank lenders. While they are a viable source of funding, it is important to do your research. For example, the merchant cash advance companies are often more willing to make loans that banks are, but they charge much higher interest rates.
The identification of this type of business loan you need is imperative.
SBA loans. are loans guaranteed by the government that are available to small businesses by banks and other lenders, including credit unions. The SBA itself does not lend directly to small business owners.
Term Loans. This is a common type of bank loan to small businesses for expansion, acquisitions, refinancing, and working capital. Long-term loans are usually repaid on a monthly basis and tend to be in larger quantities and with lower interest rates than short-term loans. They are also generally easier to obtain for successful businesses. A secured loan is one in which a borrower sets up a specific asset or assets (collateral) the lender can seize in case of default. An unsecured loan, on the other hand, is granted on the basis of creditworthiness, credit history and reputation as a borrower, rather than by pledging assets as collateral.
The credit lines. A credit line provides a business with progressively access funds as needs arise, rather than having to borrow a large amount at one time. It is used much like a credit card. A line of credit is considered a short-term solution, and interest and fees can be high. Thus, they are best used in cases of temporary cash flow problems, and not for capital improvements, expansion or acquisition of businesses.
Alternative financing. nonbank lending products include merchant cash advances are repaid as a percentage of daily credit card receipts. These are usually short-term loans at very high interest rates, up to 30 to 40 percent. They are useful for companies that require financing decision very quickly or for borrowers who have less than stellar credit ratings and are unable to obtain financing from banks.
loans Peer-to-Peer (P2P). P2P has become commonplace thanks to companies like Kickstarter and Indiegogo, which submitted funding sources provided by individuals through online platforms. It can be effective for the arts and fundraising / non-profit charitable, but probably not for capital improvements costing large amounts of money.
loan market. market loans is the evolution of P2P lending. With technology online borrowers and lenders, market ready platforms allow small businesses to obtain capital for hedge funds, family funds, insurance companies, and other lenders ( nonbank) institutional connection.
Biz2Credit is among the major companies involved in the market lending, which disrupted the loan system based on small business financing bank. If you need help navigating your options, Biz2Credit loan experts are available for guidance. There is no consultation fee. Contact Biz2Credit visit https://www.biz2credit.com/taxact or call (800) 0-5678.
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