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Running a small business requires money, and at times every small business owner finds themselves in a position where the business needs exceed available cash flow. Thatâs when small business loans make the most sense. Small business loans provide entrepreneurs with the capital they need to keep things running smoothly and profitably. The following business needs indicate itâs time to get some funding, fast.
Reasons to get a small business loan
Starting a new business is an exciting venture, but it is also an expensive one. The cost of each step depends on many factors including region, industry, physical location needs, equipment requirements, and licensing regulations. To get a business started, some universal steps include:
Forming the entity
One of the first steps small business owners must take is landing on the right business structure for their new entity. Before deciding how you plan to incorporate your new business, consider who will be involved, how much financing the business will require, and the likelihood of legal vulnerability. From there select one of the following types of business structures:
Applying for necessary licenses and permits
Depending on the type of startup business, there is a variety of licenses and permits required to legally operate. Some of these licenses do not have a monetary cost, but many of them require an application fee, training expense, or inspection costs. Some common licenses required for a business include:
- Tax registration, required by the IRS
- Professional license, like a massage therapistâs license
- Health permits, publicly occupied locations
Securing a location
Once your business plan is becoming a reality, youâll need to decide where you want to do business. If you offer products or in-person services, youâll need to research commercial real estate locations for sale or lease. If you can operate remotely, it may make the most sense to work from home initially.
Marketing and advertising
For a small business to be successful, people will need to know about it. While there are many ways to get the word out about your business for free, having some funds set aside for marketing and advertising may speed up a steady income.
Working capital describes the cash or assets owned by the business that can be used to finance day-to-day operations. Working capital is the result of initial investment and ongoing revenues, but sometimes there is simply not enough capital on hand to cover expenses. A small business loan can be used to bridge the gap in the event of seasonal fluctuations or help pay the bills until revenues increase.
Many small business owners can operate a one-man shop at the beginning or indefinitely, but sometimes hiring a few key team members is necessary. Having the right staff can increase production and increase net income over time. People donât work for free though, so a small business loan can provide the funds you need to hire the right staff.
Whether your vision is a large retail operation or a small shop in your dining room, you will need inventory if you sell products. Small business loans allow entrepreneurs to purchase the inventory they need and take advantage of the savings associated with bulk or time-sensitive orders.
Almost all new businesses require some sort of equipment. If your new entity requires computers, software, machinery, vehicles, copiers, or any other equipment, a small business loan can provide the capital needed to get the equipment in place.
Expansion means different things for different businesses. Expanding your business may mean opening a new location or expanding your sales team. Entrepreneurs look forward to the day when they are considering any kind of expansion. When that day does come, though, it will be necessary to have access to fast funding.
Thatâs right, small business loans can be used as a tool to refinance other debts. As revenues increase, it is smart to take a hard look at existing debts like short-term loans, personal loans, equipment financing, or friends and family loans. Taking out a new loan can help an entrepreneur pay off old debts and refinance for better repayment terms.
Types of small business loans that fund fast
There are many different small business financing options than can give business owners the funding they need. The key to fast business loans is to select the right type of loan and choose a lender that specializes in fast funding. The type of loan that is best for you depends on your business needs, desired timeline, and creditworthiness. May of the following loans have a simple application process and offer fast approvals.
A term loan is a traditional type of business financing where the borrower receives a lump sum of cash up front and then pays the loan back over a predetermined amount of time. Term loans are right for borrowers that need up to $500,000 and are looking for predictable repayment terms. Interest rates for term loans are either variable, which fluctuate according to the market rate, or fixed, which remain the same over the life of the loan. Term loans can be used for working capital, expansion, repairs, or large purchases and may require a down payment or personal guarantee from the borrower.
In a nutshell, term loans:
- Loan amount: $25K – $500K
- Repayment terms: 12 â 36 months
- Eligibility: $250K annual revenue, 660 credit score, 18+ months in business
- Funding time: As little as 72 hours
SBA loans are a financing option backed by the U.S. Small Business Administration. The funds are issued by an SBA-approved lender, but the government guarantee makes these loans lower risk for the lender. There are multiple loan programs through the SBA including the SBA 7(a), 504 loans, Microloans, and Express loans. Some SBA loan programs determine the permitted use of the funds as well as the repayment terms and interest rates. Small business owners that can get approved for SBA loans prefer this type of financing because SBA loans have lower interest rates, smaller down payments, and more flexible eligibility requirements.
In a nutshell, SBA loans:
- Loan amount: Up to $5 million, depending on the loan program
- Repayment terms: Up to 25 years, depending on the loan program
- Eligibility: S. citizens, business requirements and credit scores vary for each program
- Funding time: 30-90 days
Business line of credit
A business line of credit can be funded in as little as 24 hours for approved borrowers. A line of credit works like a business credit card in that it is a revolving line of credit. The borrower is approved for a maximum loan amount and then can draw on the credit line whenever they need fast funds. Monthly payments reflect only the amount of funds withdrawn, not the credit limit.
In a nutshell, Lines of credit:
- Loan amount: Up to $1 million
- Repayment terms: Eligible to renew annually
- Eligibility: Minimum annual revenue varies, 580+ credit score, 12+ months in business
- Funding time: 24-72 hours
Merchant cash advance
A merchant cash advance (MCA) works by using the borrowerâs receivables as collateral for a cash advance. An MCA is not a loan, but an agreement between a business owner and a lender where the business owner sells their future credit card sales or other business receipts to the lender in exchange for a lump sum payment upfront. MCAs provide a fast-funding solution for any business that expects future credit card or debit card revenues.
In a nutshell, MCA:
- Loan amount: Determined by revenues
- Repayment terms: Weekly or monthly payments plus processing fees
- Eligibility: $150,000+ annual revenue, 525 minimum credit score, 18+ months in business
- Funding time: 24-72 hours
Invoice factoring and invoice financing are two similar financing types with unique distinctions. Invoice factoring describes the process when a small business owner sells their unpaid invoices to a third-party factoring company for a percentage of the value. The factoring company then collects on the invoices and disburses the balance, minus fees, to the small business. Invoice financing acts like a line of credit where the unpaid invoices act as collateral but are still collected by the borrower.
In a nutshell, Invoice factoring and Invoice financing:
- Loan amount: Determined by revenues
- Repayment terms: dependent on agreement
- Eligibility: Open to borrowers with good or bad credit
- Funding time: 1-3 business days for invoice financing
Where to find the best lender
There are a few places small business owners typically turn to for business funding options including traditional banks and alternative lenders.
Traditional lenders include banks and credit unions. These financial institutions often have multiple brick-and-mortar locations and can offer in-person appointments for financing consultations and loan applications. Borrowers can connect with a traditional lender by using the same bank where they have a business bank account or by choosing a location close to home.
Alternative lenders include online lenders and some private financing options. Online lenders, like Biz2Credit, offer customers access to an easy online application process and fast approval notifications. Small business owners with multiple needs often choose online business lenders because they offer many different types of loans in one place and individuals that have trouble qualifying at a bank may still be able to get a quick business loan. Borrowers can find the right alternative lender by reviewing testimonials online or doing a quick internet search and reviewing the FAQ section of lender websites.
How to get fast approval for a small business loan online
Sometimes small business owners experience circumstances where fast funding is a must, and other times entrepreneurs just want to wrap up the loan process as fast as possible. No matter the reason, the borrower can speed up the funding process by taking the following steps.
Choose an online application
Deciding to apply for a small business loan with an online lender is the fastest way to get the funding your business needs. Online lenders offer a simple online application and can provide approval details within 24 hours.
Lenders evaluate the creditworthiness of a borrower by reviewing the business plan, credit scores, monthly revenues, and other eligibility requirements. If you donât know your net income, check financial statements, or tax returns. To learn your personal credit score, you can get a free copy of your credit report once every year.
Gather documents ahead of time
Before sitting down to complete a loan application, gather a few documents that may be requested by the lender. While your application may not require all of these documents, having them on hand can expedite funding.
- Tax returns
- Bank statements
- Business credit history
- Debt schedules
- Income statements
- Personal credit report
After an application is completed, requested documents are sent to underwriting for approval.
The best part about working capital loans is that there is a funding type thatâs right for your business needs. Get the cash you need for your business fast by working with Biz2Credit today on a term loan, SBA loan, merchant cash advance, or invoice financing. If you want to hear more about the flexible financing options at Biz2Credit, you can learn about Gauntlett Eldemireâs story, and how âBiz2Credit always comes through in the clutch.â