The Small Business Administration (SBA) helps small businesses obtain funding by establishing lending guidelines and reducing the risk of lenders. While nearly 22% of small business owners use their personal savings to finance their businesses, a safer option is to keep business and personal finances separate. When you borrow money for your business, there is a risk that the company will not be able to repay the loan. If the loan is in your name, your personal credit rating could drop if your business defaults on the loan.
You could also lose personal assets if you combine business and personal monetary issues. It's not uncommon for business owners to put up their home or other property as collateral for a business loan, which means that a lender could recover the property if the company falls behind on payments. These popular government-backed loans are available for most commercial uses, with terms of up to 25 years and moderate interest rates. SBA loans are widely available through banks, although the application process can take anywhere from five days to two months or longer.
Short-term loans have repayment periods of a few months to a year or more, ideal for when you expect to get a quick return on what you are investing with the loan funds. Loan approval can take as little as a few days, even for business owners with bad credit; however, higher rates are often a compensation for speed and accessibility. Working capital loans are short-term loans that are disbursed 24 hours to one week after approval and are designed to finance the daily operations of your business during a period of reduced activity. When the break ends and the business grows again, you should have sufficient income to repay the working capital loan. A small business loan gives you access to capital so you can invest it in your business.
Funds can be used for many different purposes, including working capital or improvements, including renovations, technology and staffing, business acquisitions, buying real estate, and more. When a bank evaluates whether you are eligible to apply for a loan and how much debt your company can repay, they take into account many different factors, such as the state of your business, the guarantees available, your cash flow and your nature. Depending on the type of loan product you apply for, requirements and conditions may vary, so make sure your lender explains what they will need from you in order to qualify. Required documentation typically includes a detailed business plan and proof of guarantee; comprehensive financial records, such as income tax returns, personal and commercial bank statements, loan history and a balance sheet; and legal documentation, such as franchise agreements, business licenses, and records. Your company's accountant can prepare the necessary business and tax documents to support your small business loan application and guide you in accounting and tax matters related to your business.
Financing equipment can be a good option for small business owners who need to borrow money to pay for new equipment or business machinery. When your company applies for a loan, you are responsible for paying the amount borrowed, plus interest, according to a set schedule. These small business loans are processed by participating lenders, which are usually banks but since they are guaranteed by the U. S. government they offer more favorable terms than traditional bank loans.
Just remember that the amount of funds available and the payment terms will depend on the health and history of your small business. Before your company applies for a loan to expand it's a good idea to analyze the numbers to see if this type of growth will increase your revenues. In addition invoice factoring and receivables financing are available to companies that collect a large volume of invoices. Getting a small business loan can provide your business with the funding it needs to start expand or cover daily expenses. When you apply for small business financing it's important to understand what information small business lenders need from you so that you can gather the right documents.
Repayment terms vary between days months or years depending on your lender and this can vary depending on your credit history company finances and the size of your loan. A personal guarantee is a common feature of business loans requiring the business owner to be personally responsible for their company's debt in the event of default. When choosing a financial institution make sure the lender has a proven track record of helping small and medium-sized businesses succeed.