Small Business Loans – Why and Why Not
When it comes to financials that concern your organization’s growth and prosperity, you would never want to take a chance, would you? Additionally, when it comes to your personal life, you’d always want a steady flow of income and a safety net to secure your and your family’s future as well. This brings us to a rather peculiar scenario of growth prospects. Addressing the elephant in the room, we would need to look at the importance of business loans and the ways in which one should be using them best. Business loans, if taken at the right point of time can further an organization’s reach and scope in a broad manner. On the flipside, taking a business loan without having a plan for progress in mind can be more of a liability than an asset. So, what points should you focus on, as a small business owner, before going in for a working capital loan? There are a few key questions that you should ask yourself before you decide on a business loan –
The answers to such questions will help you get clarity on the kind of loan that you need. It could be a government-backed loan, a business loan or credit line from a bank, cash advance, or credit line from microfinance lenders (alternative lenders). There are pros and cons associated with every form of lender. In the following few lines, you can read about the brief descriptions of the different types of lenders.
You might be thinking that every type of lender mentioned here has a point which can be helpful for you. That is correct and it is actually up to you to understand when you should be approaching which lender to get a loan that can help in the growth of your business. If you are starting a business and have a great business plan, SBA loans might be better because of their longer tenure of repayment and low interest rates. Bank loans can help out when you don’t have the time to wait for an SBA loan to be approved. For example, when you have a prime piece of property that is on sale and you think it would be ideal for an office space or a warehouse. But when it comes to fulfilling seasonal sales and getting supplier discounts on short notice, alternative lenders might be the only way out. It is also imperative to understand that different lenders also have different information requirements. While an SBA loan will require every possible documented proof of your personal and business details, bank loans will need detailed information about your and your business’ financial records and alternative loans can vary in their requirement of information. In order to maximize your chances of getting a loan approved, you need to plan well in advance. You need to observe a good credit behavior, paying your dues and installments on time, ensuring your business shows consistent profit and that your presence in the business is there for a long time, preferably years together. Collateral requirement and checking of IT returns could also be done.
Let’s have a point-wise view of all three types of lenders and their criteria for loans –
|Approval Time||Very High||Medium to High||Low to Medium|
|Interest Rates||Very Low||Medium to Low||High to Low|
|Loan Tenure||High||Medium to High||Low to Medium|
|Documentation Required||Very detailed||Lesser than SBA Loans||Least (in most cases)|
|Processing Time||Very high||Medium to high||Low (in most cases)|
|Fees and Charges||High||Medium||Medium to Low|
|Collateral Required||Yes (in most cases)||Yes (in most cases)||Yes (depending upon the case)|
As a signing off, keep in mind that a business loan, just like any other loan, is a responsibility and a liability. Availing one at the proper time and repaying it on time will ensure that your next loans are available at much lower rates and in shorter time.
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