Benefits and tips of small business loans
For any business to succeed, money is needed to prosper, grow and become fiscally sound. Many entrepreneurs often think of going to their local bank to get a loan; however, it is sometimes difficult to get a loan from a bank due to harsh regulations.
However, most banks are changing their minds these days about providing loans because they see future financial success with small businesses and their need for emergency business cash. To be clear, there are several great benefits of small business loans such as being convenient and accessible, with personalized services that banks offer every day.
In addition, banks offer multiple loan options such as standard business loans and term loans. Keep in mind; banks do well by offering business loans because of the interest they charge on the loans. Another benefit that a small business loan provides is nonprofit sharing. Unlike angel investors and venture capitalists, banks do not ask for any of these. Banks are only interested in getting interested and partial loan payment installments. Most importantly, banks provide loans at lower rates of interest than other lending agencies and bank loans offer tax benefits. This is helpful because the percentage of profits used to repay the loan is free from tax.
It is important to note that there are also disadvantages with small business loans such as the lengthy application process. The process is long because banks need to verify all the details about a person’s business before providing a loan. In most cases, getting a small business loan can also be comprehensive and too detailed. In addition, banks often prefer businesses that are already up and running because they can evaluate its profitability and credit history before giving the loan. Also, in most cases, banks have a host of conditions that a small business has to fulfill before the loan is given and there is a risk of an entrepreneur being sanctioned against some kind of collateral; often the entrepreneur’s house and/or property.
Some may not know it; but a bank may not agree to provide the entire amount needed for a loan. For example, they may only give 60-70% of the sum applied for. This would make it difficult for an individual to get his business going; searching other areas for the remaining balance. However, the biggest advantage of taking out a business loan during tough economic times is that companies can use it to increase their working capital. While companies that are looking to expand often already have enough money to become larger, taking out a loan allows them to maintain their operating cash flow, making it easier for them to cover any unexpected expenses. Thus, they are able to make payments on their loan by using the new income gained from expanding their business.
Another benefit of getting a business loan is that, if the loan is given to a corporate entity, the loan will not have to be repaid by the business owner if the company fails. Most business owners like this particular aspect because if things go bad, they will not go bankrupt, only the corporation. Most importantly, before taking out a business loan, each business owner should first evaluate their wants and needs. By doing this, the business owner can see which lender will be the best fit for their company. In addition, it is vitally important that business owners take the time to read all the terms and conditions that are part of any business loan. Reading the terms and conditions are important because in most cases there are early repayment penalties associated with a loan.
There are several things you should know before taking out a business loan. Applying for a loan can be a great first step in getting your business off the ground; especially considering that you will be held accountable for repaying the loan, no matter what events happen to you once the loan has been given. Keep this in mind; you will be required to sign the loan yourself and if you have to close your business, you will have to pay the balance of whatever is owed.
To ensure that the loan process goes well, it is also important to know your credit score. Your credit score is important; so always know your numbers. Most importantly, ask for a personal credit report. You can get one free at AnnualCreditReport.com. When checking your credit report, look for errors. Maybe you made a payment on time but were recorded as late. If you do find a mistake, contact the credit bureau and the company that started the misnomer and resolve the issue. Then, understand your options. Other options besides banks and other financial institutions are OnDeck and a merchant cash advance. A merchant cash advance is based on future credit card sales.
Most importantly, know what you need. If you are unclear about how much money your business needs, talk with an accountant or an adviser. In addition, be prepared to discuss specifically how the loan will be used. This is important because if you can’t state clearly and in good terms how your loan will be used, the lender may feel that you are not prepared to get your business going and do not have a good business plan. This can stop a business loan dead on the tracks! Keep in mind; if you don’t get the first loan you apply for, don’t become discouraged. Lessons can be gleaned and applied to the next time you seek out a loan.