February 14, 2019 | By Peyton Sawyer
If you're a small business owner, then you know better than most that it takes money to make money. Besides a good idea, business skills, hard work, and dedication it takes to open and run a successful business, it also takes money. But, where can you get the money you need to grow your business? Like most small business owners, you probably lack the savings required to fund your business independently. That's why it is so essential to know what loan options are available to you, and understand which one will work in your favor the most.
Loan Options for Small Businesses
While there are several types of business loans that a business owner can choose from, there may be only one that fits your needs, or be available to you and your situation. It is up to you to find out the pros and cons of each. Every loan will come with its own set of requirements, benefits, and drawbacks. Finding the right questions to ask when applying for a business loan could make all the difference.
How to Choose the Right Lender
Choosing the right lender may take some research. The more knowledge you have about lenders and the products they offer, the better chance you have to successfully receiving the money that your business needs with a top business loan.
How to Get Started?
Filling out the right forms is the first step in the application process. Once you have completed the application available to you online, you simply submit the application for review. Once the application has been received, a representative will contact you to review your request and explain the documentation that is required for approval. The requirements or documentation required will depend on the type of lender you have chosen to use.
What Are Traditional Lenders?
The first and most obvious choice when looking for a lender is typically a traditional lender, such as a bank or credit union. There are lots of benefits to considering this type of loan. For instance, the interest rate offered with a bank loan is at a fixed rate, following federal guidelines. That means that you will not be charged a higher than normal interest rate on the money you receive. But, like everything in life, there are also drawbacks that many applicants face when applying for a bank loan. The stringent guidelines will often be to blame when applicants are denied a bank loan. With the bar being set so high, business owners like you, who cannot provide valuable collateral, the business finances required, and the credit score needed to be approved, find themselves having to look elsewhere for the financing they need.
When Are Bank Loans A Good Decision?
- If you can meet the stringent requirements for a bank loan, then a small business loan can typically provide one of the lowest interest rates of all your funding options.
- If you want to further establish your relationship with the bank, as well as your credit history, it may be a good idea to start now so, the next time you need money, you have the option to qualify for a larger amount.
- If you do not require immediate funding, small business loans can typically take up to 60 days for approval.
When Are Bank Loans Not A Good Decision?
- If you have faced credit challenges in your business that have caused your credit to be less than excellent, this may not be the best choice for you.
- If you do not have a business plan to review with the bank, you may need to put in some work before you can apply. When applying for a bank loan, you will be required to provide a detailed outline your business plan, tax records, bank statements, and all marketing plans.
- If you do not have the collateral needed for approval, you may want to hold off. Small businesses are considered to be a bigger risk, so collateral is required to ensure the bank will receive repayment on your loan.
But where can you find the money you need when a bank loan is not an option? A private or alternative lender can may be just what you need. Without the request of collateral, a good to excellent credit score, and the difficult requirements and documentation, small business owners are finding it much easier to get the business funding they are searching for through alternative lending.
What Are Alternative Lenders?
Alternative lenders are considered to be a private or non-traditional lender. This type of lender can offer you the business funding you require with a less stringent loan process than a bank or credit union. Alternative lenders typically offer business owners affordable financing with ease and speed. While this is a benefit for businesses in need of money who do not have credit or collateral, there is also a drawback. The interest rate of an alternative loan can be higher than a bank loan. Alternative lenders accept the risk associated with a client that does not have the criteria needed to back up the funding provided, but because of this the applicant is charged a higher interest rate on the money that is borrowed.
When Are Alternative Loans A Good Decision?
- If your credit is less than excellent, this may be your best bet. Alternative loans are not based on your credit history (or lack of). An alternative lender will leave room to consider what you have built and its potential, by offering funding with just a few simple requirements.
- It's a fast and easy process. Alternative lenders, like Nextwave Funding, can provide small business funding in 24-72 hours.
- If you are willing to pay a higher interest rate, you could receive the funding you need in no time at all.
- If you are looking for a better chance of approval, without the stress of a stringent loan process, alternative loans may be for you.
When Are Alternative Loans Not A Good Decision?
- If you are not willing to pay a higher interest rate in exchange for ease, convenience, and speedy small business loan process, you may want to consider other funding options.
When looking for the funding your small business needs to succeed, it is important to understand all of your options before committing to a financial contract. Best of luck in your entrepreneurial endeavors!