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Tag: Small Business Loans

  • 8 Things Entrepreneurs Should Look for When Getting a Business Loan

    8 Things Entrepreneurs Should Look for When Getting a Business Loan

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    Opinions expressed by Entrepreneur contributors are their own.

    If you need funds for your enterprise, it can be very tempting to go for the first business loan on offer. However, there are a number of things you should look for before you sign on the dotted line.

    1. The right loan type

    As with personal finance, there are several different forms of business loans, so you need to choose the one that best suits the needs of your enterprise.

    • Traditional loans: These are the business equivalent of a personal loan, which can be secured or unsecured. You’ll borrow a set amount and have a set repayment schedule with a fixed interest rate.
    • Line of credit: A line of credit provides you with a set funding amount but you don’t need to receive and pay interest on the full amount. You can call down funds as you need them and you’ll only pay interest on the amounts you borrow.
    • Equipment financing: If you need funds to purchase equipment, this type of business lending is designed to suit your needs. The piece of equipment you purchase will act as collateral for the loan, so you can usually access more flexible terms.
    • SBA loans: SBA or Small Business Administration loans are an option if you would struggle to qualify for a bank business loan. The lending criteria is more flexible, which could be a more agreeable choice for new enterprises.

    Before you agree to a business loan offer, it is well worth assessing the other types of business lending to confirm the loan is the best fit for your enterprise.

    2. Manageable loan repayments

    Before you sign the loan contract, you should have an opportunity to check the details of the loan repayment requirements. You will need to think carefully about whether you can comfortably accommodate the monthly payment in your budget, not only now but throughout the lifetime of the loan.

    If you have concerns that the payments may be difficult, or you may struggle to meet the payment deadlines, it is best to look for another loan product. Missed or late payments can not only create additional financial stress but can have a massive impact on your credit.

    Related: The 7 Different Loans You Can Get as a Business Owner

    3. Reasonable loan fees

    This follows on from the previous point, but you should also be fully aware of what fees you will incur with your new business loan. In addition to paying interest, you may incur origination fees, and processing fees. These will be added to your loan principal or you’ll need to pay them upfront. Ideally, your new business loan will have little or no such fees.

    You also need to watch for the fees you may incur during the lifetime of the loan. For example, you don’t want to get stung with a massive late fee if there is a mix-up at the bank. It is also a good idea to look out for early repayment fees. If your business finances change and you want to clear the loan, you won’t want a loan that imposes a hefty early repayment fee.

    4. A good lender reputation

    Unfortunately, not every lender in the market offers the same level of service, in fact, some can be downright risky. The adage of “too good to be true” certainly applies here. So, it is vital to investigate the lender’s reputation and be on the lookout for some red flags. These include:

    • No credit check requirement: If a lender does have minimum credit score requirements or does not require a check of your credit score by soft or hard pull inquiry.
    • No verifiable credentials: If the lender does not have a professional website and does not provide details of a physical address.
    • Lack of fee transparency: Lenders should be very clear about their loan fee structure, so you are completely aware of how much the financing options will cost.
    • Pressure selling: If the sales rep is trying to pressure you to immediately accept a business loan offer without presenting you with information and the time to study it.

    5. The correct loan amount

    While it may be tempting to get the biggest business loan you can get approved for, this is not likely to be a good idea. Likewise, if the loan offer won’t cover your immediate funding needs, it is not the right choice.

    Think carefully about what funds you need and how you’ll use them, so you can be sure to obtain a loan for the correct amount.

    6. An attractive interest rate

    As with any form of finance, your interest rate will determine the cost of your business loan. Lenders will use a variety of criteria to determine your risk profile and therefore your rate. However, these criteria vary from lender to lender, with some lenders being more rigid and some lenders being more flexible.

    If you have a brand new enterprise, you’re not likely to get the best rates, unless you have excellent credit yourself. But, it is still important to compare rates to ensure that you’re getting the lowest possible rate for your enterprise.

    However, you may be prepared to pay a slightly higher interest rate if there are minimal fees or other benefits to the loan. So, don’t look at the interest rate comparisons without some context.

    Related: 3 Different Types of Business Financing and What Entrepreneurs Need to Know

    7. A reasonable funding time

    While you may not need the funds urgently, you are still likely to want to implement your plans as soon as possible. So, check the funding times each lender offers for their business loans. After you submit your application and receive approval, when can you expect to receive the funds in your bank account?

    Some lenders can release funds in 24 hours or only a few days, but other lenders are slower. If you will have to wait weeks or months for your funds, it is a good idea to look at alternative options.

    8. Solid customer support

    Finally, it is worth checking the levels of customer support offered by your potential lenders. If you have queries or questions about your loan, can you speak to the support team quickly? Some lenders have phone helplines, while others rely solely on email or chat. So, you need to be comfortable with the customer support options.

    It is well worth reading some reviews of the lender to see if there are any red flags about long call wait times, slow responses to emails or other customer support issues before you become a customer.

    Bottom line

    Getting the right business loan for your needs requires some time to compare the different aspects and lenders. When you follow the factors above and make sure to maximize each of them, you can save money, time and financial stress.

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    Baruch Mann (Silvermann)

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  • 10 Places You Can Get a Loan In 2023

    10 Places You Can Get a Loan In 2023

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    Opinions expressed by Entrepreneur contributors are their own.

    As I write this, commercial interest rates — the rate businesses pay for working capital, equipment and property loans — have more than doubled over this past year. My clients are now seeing commercial rates exceed 10% — that’s going to be a big challenge for those that rely on debt to fund their operations and expansion, let alone those entrepreneurs looking to startup and grow their businesses.

    The financing environment will be tough in 2023. Less businesses will get approved for loans as the financial services industry contracts in response to continued high interest, inflation and a slowing economy. But it’s not a catastrophe. There will be money out there if you’re willing to pay for it. Here are your best choices to consider.

    Related: 5 Best and Fast Small-Business Loans (Some of Which You’ve Never Heard of)

    Big bank loans

    For starters, if you don’t need a loan, then you should definitely go to a traditional bank. I’m kidding, of course. But traditional banks — and you know the names — are the most risk-averse of all lenders. They are going to lend money to businesses that have collateral, history, solid credit and the ability to pay the loans back almost without question. Interest rates and terms, assuming you meet those requirements, will always be the most favorable compared to other financing options.

    Small bank loans

    Besides the big banks, there are independent and community banks and credit unions all of which offer different types of loan arrangements and may be more amenable to dealing with a smaller company that isn’t as qualified to get a loan from a big bank. But still, these banks, though a little more entrepreneurial, tend to also be very risk averse and will require significant due diligence.

    SBA Loans

    The best option in 2023 is to seek out a loan from a lender certified by the Small Business Administration. Those loans (called Section 7a or 504) can be offered at market or slightly above market interest rates. Because most of the amounts are guaranteed by the federal government, the banks offering these loans can do so to smaller companies with less of a financial history or collateral available and are less at risk. But it’s still not a slam dunk and you’ll have plenty of hoops to jump through.

    Related: How to Navigate the Volatile Business-Funding Environment

    Online lenders

    If you’re looking for a very short-term loan to satisfy an immediate financing need (a big inventory purchase, a down payment on a lease, a deposit on a new piece of equipment) you can try an online banker like Kabbage, Fundbox and OnDeck. These companies charge extremely high annual interest rates, but no sane business person would borrow from them for the long term. The upside is that these services provide funds very quickly — in some cases within 24 to 48 hours — and (as opposed to many banks) are more technology-oriented to gather data, monitor their loans and communicate issues.

    Merchant advances

    If you’re in the retail world then you might want to consider a merchant advance, which are short-term loans provided by popular payment services like Square, PayPal and QuickBooks Merchant Services. Your loan qualifications are determined by your actual sales volume to which these payment services are privy because, well, they’re already handling your cash. Like online lenders, interest rates are much higher than what traditional banks offer but the funds are quickly deposited in your account and payback is done automatically through the sales transactions you record with the service.

    SSBCI

    If you’re a very small business or a minority business owner or someone located in a lower-income part of the world then you should definitely look into the State Small Business Credit Imitative. Thanks to prior pandemic-related legislation, $10 billion is being distributed this year and next by the Treasury Department to states (based on a number of factors) that will then be allocated to local nonprofits and other organizations that support small and minority-owned businesses. You can Google your state and the State Small Business Credit initiative to find out what organizations are getting this funding and then apply directly to those organizations. Grants and equity investments are also available through this program.

    Micro loans

    For startups and very small businesses, you can also look for microloans offered by nonprofit organizations like Kiva, for example. These amounts are — by definition — very small but organizations like this one also provide good consulting services and can connect you to other places that offer finances for companies at your early stage.

    Private lenders

    Although these companies don’t charge as much interest as some of the short-term online lenders mentioned previously, interest rates are still higher but so are approval rates. Collateral — oftentimes receivables (for companies that “factor these amounts) and inventory — will be required. The best place to find these lenders (and other more traditional forms of financing) are platforms like Lendio and Fundera which offer a “marketplace” of different vehicles provided by their partners and an easy way to apply for them all.

    Credit cards

    What about credit card financing? You know you’ll pay a hefty interest rate but don’t knock it entirely — it may be a bad choice unless it’s for very short-term needs. Just make sure you’re not building your business around credit card debt because as interest rates continue to rise, so will credit card rates.

    Family and friends

    Finally, there are friends and family. A lot’s been written on this so I don’t have to tell you of the potential perils. You already know them. But getting a loan from a reasonable friend or family member can provide you with a reasonable rate of interest and flexibility. It all depends on the people involved.

    The takeaway is that 2023 will be a tough year for financing. But not impossible. Just make sure you can afford it. And give yourself the flexibility to renegotiate in the future when rates do eventually come down.

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    Gene Marks

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