Types of Small Business Loans

Before you begin with loan applications, you need to have a solid understanding and justification for why you need a loan for your business. He can not enter the bank and simply asks for more money because he feels he needs it. Carefully analyze the financial situation of your company and be prepared to defend your reasons why you need a loan. A bank is reluctant to throw good money after bad. So, if your business loses money in the hands of a fist, it is likely that it is unwilling to lend you money. Commercial loans are used for certain reasons: buying equipment or leasing business premises, financing the growth of a proven company, or providing capital for expansion.

If your business needs a sum of money to buy equipment or real estate in advance, you need a loan. This is a loan that is defined as a loan. This means that there is a fixed interest rate, an advance or a guarantee, monthly payments and a period of months or years, over which consistent payments are made. Business start-up companies need to provide extensive documentation, business planning, and personal guarantees for a bank to be willing to risk new business lending. Enterprises in the growth and expansion phases tend to see better results as they have steady profits or increased sales to show that they have a good chance of repaying the loan.

Another type of loan is via a line of credit. Just as you can use the equity in your home to finance a purchase, a bank can lend equivalent value to your business as collateral for financing your business. Credit lines tend to be more fluid as you may not have to spend the maximum amount you can borrow. factorization The factoring of receivables is an interesting type of loan in which the factoring company buys the amounts of its receivables and collects them on normal terms in the future. You could sell your claims for 97% of their value, and the factoring company earns 3% as customers who pay you.

Factoring is another way to gain access to capital, but it can be quite expensive if your AR is between 95% and 98% of its value within a month. If you add the discount the factoring company receives during a year, the “interest” you pay is quite high. Loans for small business administration The Small Business Administration was established to promote the creation and growth of small businesses in the United States. If you can not qualify for loans through traditional bank loans, the SBA can help you through one of the three loan programs.

The three programs are the Loan Program 7 (a), the Microcredit Program and the Loan Program CDC / 504. A Loan Program 7 (a) has very specific requirements and is intended to help only in certain cases, eg in rural areas or to accelerate the Loan process for active service or veteran members. The microcredit program offers very small loans for the purchase of equipment or inventory. The funds can not be used to buy real estate. The 504 program is a long-term loan designed to help companies acquire significant assets for growth or expansion. The SBA does not grant loans directly to small businesses. Instead, the government gives its bank loan partners the guarantee that the loan will be repaid, even if the business fails. This should help to create a certain entrepreneurial risk for companies to start in communities across the country.

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