The basic facts about business loans you must know before you apply for one, especially from a conventional bank will be discussed in this article.
If you do not meet the minimum requirements, there are other lender options you may consider as well. The bare minimum criteria is likely to include the following.
- Have been in businesss for at least one year
- Your business has a predicatble annual revenue of $100,000 or greater
- Business Credit Score is at least 650
- The Business can provide collateral, conventional or otherwise
Facts About Business Loans and Good Credit
OPTIONS FOR BUSINESSES THAT DO NOT HAVE THE REQUIRED CREDIT SCORE AND HISTORY
- If the business does not have any credit history at all, you may have to apply for the loan personally instead of applying under the auspices of your business.
- If your business credit score is a minimum of 500 and you can document meeting the annual requirements for revenue, there are alternative lenders available for businesses less than a year old.
- Wait until your business has established a credit history and apply for a long-term loan with the common terms typically applied.
Facts About Business Loans Include How Your Repayment Is Impacted By The Term of The Loan
There are several factors that will determine the term of your business loan.
- Where the loan is obtained
- The value of the loan
- On what you will use the funds
The term repayment term may range from only a few months to a period greater than 20 years. This is commonly based on the needs of the business.
In addition to the loan amount needed, you will also need to determine a repayment term with which you will be comfortable. I suggest you utilize an online business loan calculator.
This is a helpful way to estimate the amount of your loan repayments. This amount will be based on the amount of the loan and the term of the loan.
The Length of the Loan Term Is An Important Fact You Need To Know
The length of repayment might be a few months or more than 20 years, depending on your decision to obtain a long or short term loan. That decision will be made based on the lender, amount of the loan and the loan type.
You must take many factors into consideration. Are you needing to expand your business to a significant degree? Or, do you just need to increase your cash flow for a period of time?
One of these is better suited to a conventional business loan that is long-term in nature. The other is best served by a micro-loan or alternative lender and is considered a short-term loan.
Facts About Business Loans Must Include Typical Loan Terms
It is necessary that you carefully evaluate each of the types of small business loans available to you before deciding for which one you should apply. Your business’s needs and its innate capacity will determine the conditions and terms of the loan you will be able to obtain.
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The Best Known Business Loans and Their Estimated Terms of Repayment
- Invoice financing: 30 to 90 days
- Short-term loans: 3-18 months
- Business lines of credit: 6 months-5 years
- Microloans: 1-5 years
- Equipment loans: 1 year-5 years
- Term loans: 1 year-10 years
- SBA loans: 5-25 years
How Much Money Can Be Borrowed?
This varies greatly and depends on several things. These factors include:
- Credit score
- Type of loan
- Documented revenue of business annually
Small business loans can be as much as a million dollars if the business documents adequately support for such a large amount of funds to be loaned. These same factors determine the flexibility of the length of the term loan as well.
However, in spite of how qualified your business may be, some kinds of loans have a cap on how much can be loaned. Two expamples of this are:
- SBA guaranteed microlenders can only loan up to $50,000
- SBA guaranteed lenders can lend up to $5 Million
Keep in mind that some business loans are more suited for certain business needs than are others. SBA or traditional bank loans are considered to be better for capital intensive projects requiring a long term than other types of loans.
Other Facts About Small Business Loans You Need To Know
Basically, the most common business loans are issued by either a traditional bank or a credit union.
The funds are dispersed in one total sum payout from the lender. Then the borrower repays the money as well as any agreed upon interest over the specified period of time known as the “business loan term”.
If your business credit is poor or non-existent, you may still obtain a business loan. However, there are some caveats you should know.
- You are likely to receive less funds.
- The interest rate will be higher.
- Repayment periods are most likely to be shorter.
- A personal guarantee or collateral may be required.
- Some lenders specialize in lending to these types of borrowers.
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When To Use These Small Business Lenders For A Business Loan
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