8 Powerful Options – How to Obtain a Small Buisness Loan
Written by Eric info@acsecapital.com
I've been involved in business for some time and now I have decided to make a commitment to providing small businesses with truely helpful information.
How to Obtain a Small Business Loan
This is the question that many small business owners ask. It has become more necessary as the job market has slowed down.
- Ask Family, Friends and Fools (FFF rule, if this doesn’t work, continue down)
- Apply for a Personal Loan (Can be up to $1,000,000 in some cases)
- Apply for multiple Credit Cards (Personal or Business)
- Apply for a Commercial Factoring Loan
- Apply for a Commercial Asset Based Loan
- Apply for a Commercial Line of Credit
- Apply for an SBA Loan
- Apply for a Commercial Term Loan
This is a fact. If you had have poor credit, many lenders would not be willing to help you out, if you don’t have a decent credit score. Though there are some who may be delighted to provide you with a merchant cash advance at an astonomical rate of interest, but sometimes it is what it is.
See details of the options below:
“It always boils down to having the financials and the supporting documentation to qualify for the loan you are looking for. Secondly it is also up to the bank and whether your business fits into the portfolio of loans the Bank is pursuing at the time. So “Yes”, it is still very subjective?”
How to Obtain a Small Business Loan – Detail List
Family, Friends and Fools
Family friends and fools are called the 3 F’s rule. For entrepreuers just starting out or experienced business men, it is usually much more affordable to borrow money from people you know, as it comes at a much lower price usually.
This is as opposed to heading to a financial institution that does this as a business. So try this first and see how it works out.
Personal Loan
A personal loan as we all know is sometimes the easiest way to kick start your business. Though at times, for some people who are already in business, things may not be going that well and alternative sources of income may be necessary to obtain. Meaning, if your revenue or cash flows make things challenging to acquire a credit or loan facility from a lender. You might be better off getting a personal line of credit or business line of credit. Just be sure you can prove a low risk of default.
Credit Cards
Again, this is another area many other sites have touched on and I don’t think would be anything new to you, but what I would say is there are also business credit cards and credit card programs a lender can put you business on if it is fairly young to help build up your credit profile.
Factoring Loan
Ok. So getting into how to obtain a small business loan for businesses with decent account receivables with some kind of value that is worth talking about, that can actually help you with your situation.
If you have $100,000 in accounts receivables, you can get an advance on those receivables at a percentage discount with certain repayment terms from a lender. For example letus say it is 90% of $100,000, making your loan $90,000 roughly. The caveat is that the lender would then in most cases take control collecting on those receivable for you along with a repayment term of usually 12 to 24 months. In most cases it would be within 12 months.
Asset Based Loan
I am going to try to keep this simple. If you have assets, such as inventory, equipment, property, maybe you have a small plant used to manufacture a product, furniture or IT tech.
There is a possibility you may be able to get an asset based loan from a lender. Just remember to ask about it and be ready to provide proof of ownership and detailed information about your company.
How to obtain a small business loan is a question you should start having some ideas about now that you have a few ideas.
Line of Credit
Not so much a loan as it is credit which if used as a so called “line of credit“, must be repaid, but when it comes to how to obtain a small business loan, it falls into this topic category to be discussed. “Financing is Financing”.
As mentioned above with credit cards this is a similar situation with business lines of credit, though a bit specific to business. Expecially businesses that can show acceptable levels of either Monthly Recurring Revenue or Annual Recurring Revenue.
Typlically lenders would like to see accounts receivables less than 45 days but in many cases less than 60 days is acceptable. Though there are so many different criteria lender by lender that it would be difficult to say for certain what the exact criteria would be for them all. You just have to make some call and google searches.
SBA Loan
This goes without saying. The SBA is all over the news and has been for the past 12 months due to Covid’s popularization of the SBA. Regarding the 1.9 Trillion dollar stimulus plan just passed by the Senate, everyone in need of financing that can qualify for financing should be taking advantage of this opportunity right now. How to obtain a small business loan should be definitely answered by the SBA lenders for sure.
Term Loan
A commercial term loan with definitely have to be collateralized by assets in your possesion of some kind. Lenders would also want to know how easily it could be liquidated in case of default.
It is also your job to ensure that your business is well documented internally. If not you should seek professional help to make sure you have the necessary documentation to provide your lender.
In most cases it comes down to how ready are the applicant for the loan. So in a nut shell, be diligent about your business and get things prepared so you don’t have to lwonder again about how to obtain a small business loan.
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Thank you for explaining how you may not be able to get the loan you are looking for if you do not have a credit history. My brother is thinking about opening an accounting company next month but doesn’t have enough money to afford an office building since he spent most of his budget on computers for his future employees. He should figure out what he needs to do in order to get a loan to help get his business started.
Well, it may or may not be the right solution to his needs. First before taking on any kind of debt one must understand how are payments going to be met. If they are going to come from out of pocket, it might be the wrong move, as the business needs to cover those debts. If it isn’t then payments would be secured by personal out of pocket for a business that “SHOULD” be generating corporate revenue. The same way it would be inappropriate for a person to use business revenue for personal expenses (Comingling of funds is the term banks use to describe this). Although there are many things to think about with starting up any firm debt needs to be very very carefully calculated with the right guidance and counselling.