If you are a business owner trying to spread your tentacles or stepping fresh into this arena, financing is a staple for establishing your business growth. It has been seen that many small businesses turn to small business loans due to their dynamic benefits. Like any other loan, these loans provide owners with the capital required. Exactly how does it all work out?
Firstly, what do small business loans mean? It is an amount lent to a borrower, which the business owner must pay back with interest, over a stipulated period. Business loans come in varied options- term loans, SBA loans, and business lines of credit.
It is a type of debt financing, where lenders in exchange for money, charge an interest rate. The rate is calculated as a percentage by the principal amount. As mentioned earlier, there are different types of small business loans.
- Small Business Line Of Credit – These can be secured or unsecured by nature. The nature of this loan is similar to a credit card. A small business line of credit allows one to draw funds and pay them back periodically, provided that one doesn’t exceed the credit limit.
- Factoring – This loan involves the provision of selling outstanding bills to the lender to receive early payment for those receivables. This is a fast way of obtaining cash. However, accounts receivable financing comes with a high rate of interest.
- Term loans- Quite the conventional loan that includes paying back at a fixed rate of interest against a lump sum amount. Generally, the payment period is five years as these loans are acquired for specific investments only.
- Equipment Loans- As the name suggests, this loan is aimed at buying equipment and appliances for the flourishing of business. The funding process doesn’t take long with the least amount of paperwork. For example, computers for setting up a cyber cafe.
Benefits OfSmall Business Loans–
- Huge scope of flexibility for starting a business, expanding your agency, and consolidating the company.
- Banks understand the difficulties associated with business and therefore, can offer suitable repayment options aligning with the cash flow factor.
- Tax benefits are a huge factor for choosing small business loans. The rate and proportion of profit used to pay back the loan are exempted from tax in harmony with the Income Tax Act.
Where To Obtain This Loan?
You can get this loan from various lenders. Some online lenders can speed up the entire loan process, unlike conventional bank loans. However, their interest rates are higher in comparison to the alternatives. Large commercial banks can offer lump-sum loans. The downside, however, is the rigorous amount of paperwork. As the paperwork amounts to a lot and digs in further on the assurance front, they charge lower interest rates.
Another option can be community banks. These are locally owned and operated and they can provide you more individual assistance. They lend money keeping into consideration your entire credit history and viability for business growth.
A good credit report, solid business plan, and having solid assets or collateral doubles your chance of obtaining small business loans. Irrespective of the type of loan you choose, always pay back on time so that you can lend from the same borrower in the future by developing a bond of trust and understanding.