Choose Your Small Business Loan Provider

From time to time, many small businesses in all industries need outside financing to keep their doors open. But with so many funding options available, how can small business owners be confident they’re choosing the right loan provider?

Here are five tips to consider while shopping for your small business loan provider that should increase the chances you find a lender, you’re happy with.

Gather Your Company’s Financial Documents.

Before approving your loan, any lender—from banking institutions to alternative financiers—is going to peek at your small business’ finances. So, before you begin trying to secure a loan, you’d be wise to gather relevant documentation to streamline the application process.

  • Small business owners use business loans to shore up cash flow, purchase expensive equipment and pursue growth.
  • Business loans tend to be cheaper to get than credit cards and don’t require you to give up a piece of your business to an investor. Alternative business loans are easy to obtain, even if your credit score is less than stellar.
  • Before shopping for a business loan, you have to ask yourself how much money you need, what you are using it for, and how long it will take to pay it back.
  • This article is for business owners who are considering applying for a small business loan.

How Do Small-Business Loans Work?

While you have many loan choices, they all work on a similar principle: A lender gives you money. You repay the loan, plus fees and maybe interest, over a set amount of time.

Pretty simple, right? Well, it gets more complicated when you start considering your choices.

Like how you use your loan. We’ll talk about specific loan types more in a minute, but for now, you just need to know that some loans work better for certain business needs than others. For example, some loans work well for big one-time purchases and others work better for small, repetitive purchases.

The Most Common Types of Business Loans

1. Small Business Administration loans

The Small Business Administration (SBA) offers different types of loans specifically designed for small business owners who meet certain requirements and qualifications. Here are the four major types

(a) Loan Program

By far the most basic and popular loan the SBA offers is the 7(a) loan program. These loans can be used for a variety of things, including working capital, to purchase real estate, acquire or expand, and even to refinance existing debt.

Pros

  • Long repayment time (up to 10 years)
  • No collateral requirements
  • Lower-than-average interest rates

Cons

  • Difficult qualification process
  • Very specific documentation requirements
  • Personal guarantee

Short-Term Loans

Short-term business loans provide fast cash for people aiming to bridge cash flow gaps, address emergencies, pay off higher-interest debt or take advantage of new business opportunities. One advantage of this type of loan: You often don’t need a great credit score to be accepted. These loans also tend to involve less paperwork and fast processing, so you can feasibly get the cash you need when you need it.