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There comes a crucial time where accessing external funds through loans is needed in order for a business to meet certain objectives such as growth. There are different types of loan options that a business can access in order to fund their business growth.
But a fundamental truth in any industry is that not all small-business loans are made equally and business owners have to move forward with the right information to make the best decisions.
Business owners may find that some economic periods are less friendly than others and that timing may also matter when seeking funds.
Politics may also have some affect on funding for small business owners as well.
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Some type of loans may also charge higher interest rates while others are long term loans that may allow for lower rates.
There are also multiple sources that a small business can borrow money from as well. All available options need to be thoroughly researched closely to see what fits the need of the particular business.
There are fundamentals each business needs to have before obtaining any type of loan and each impacts the type of loan the emerging entity will receive.
There are 6 Types of Business loans:
1. SBA Loans
2. Business Term Loans
3. Business Line of Credit
4. Invoice Factoring
5. Merchant Cash Advance
6. Equipment Financing
Fund seekers will also want to optimize for appearance and place their best financial foot forward. This means that individuals will have to clean up their personal and business balance sheets to look appealing to potential funders.
Basic Business Loans Requirements Include:
- Bank statements
- Revenue Statements
- Balance Sheets
- Business and Personal Tax Returns
- Personal Financial Information
- Insurance
- Collateral
- Business Strategy and Long Term Plan
It’s is very important to know how much your business needs to borrow before any type of loan is issued.
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Analyzing the Potential Risk Factors: The five C’s
The five C’s are credit, character, capacity, capital, conditions and collateral. These aspects of the business are looked at to calculate the possibilities of loan being given back in full to the lender.
The most important C the borrower will need if lacking in other C’s is Character. Character will play a very important role in all periods of economic cycles.
Long Term Loan vs Short Term Loans, What’s the Difference?
The main differences between short term and long term loans is the amount issued and the time that it will take to pay the loan back. When borrowing short term capital, the total amount is usually less than what one may finance over the long term.
Short term loans may not require severe credit checks and would be easier to obtain a short term loan as opposed to a long-term loan. Businesses usually need more paper work before borrowing large amounts of money over longer time horizons.
The Best Decision for Small Businesses
When your business is looking to expand or make a very large investment, a long-term business loan is the way to go to see better results.
The benefits are very clear, long-term business loans give businesses the ability to make decisions for the long term and weather different storms that arrive as they operate and conduct business.
Depending on how the loan may be structured over the long term, businesses may have more ability to pay the loan back as it may be structured in a feasible format.
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A small business should not obtain short-term based loans in most cases. Not only will the interest be higher but the operating capital will not be enough to get the business where it needs to be.
By clearly choosing a long-term loan you’re giving your business a better chance of succeeding and having the right type of funding to properly meet your objectives.
Make sure to make decisions for the long term and your business will have a higher chance of surviving and thriving as the years go by.
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