The small business loan can be availed by a variety of alternative and traditional lenders. Such loans can assist businesses in growing. The funds can be used strategically for new research and development, expand sales and marketing initiatives, recruit newer talent and explore newer horizons of growth.
Acquiring financing for a small business is not easy and may require continuous efforts. However, it is easier than ever to find information of local small businesses loans all thanks to the World Wide Web. Entrepreneurs can make use of the Internet to find the best possible financing options for their business. This includes programs that are government funded on local and state level. After the great recession, traditional business has rebounded and the recovery has not been as effective for small businesses, dry cleaners, restaurants, small merchants, etc. Additionally, along with term loans offered by the bank, businesses can acquire loans outside the bank.
1. Understand the financing options available
- If we look at the market, there are multiple local small business loans available for organizations to leverage. However, the one they would like to choose depends on their financial needs, the amount they need, repayment terms, duration, and more. Following are some of the most common financing options available for businesses:
- The small business line of credit: Usually, small businesses opt for a business line of credit where organizations access funds from the lender when required. However, a business line of credit is capped when it comes to the amount of funds companies can access to meet their financial needs. This is a great option for companies who are looking to manage the cash flow or meet any unexpected expense. The lender charges a fee in order to set up a line of credit. But, you are not charged any interest rate until you withdraw or make use of funds. Once you start drawing the funds, you will be charged interest that is paid on a monthly basis. Whereas, the overall amount that you utilize is repaid over a couple of years. Typically, the majority of small business line of credit are renewed automatically requiring an additional fee. In case it is not renewed automatically, you will be required to pay the amount funded in full.
- Working capital loans: Another type of local small business loans is a working capital loan that allows businesses to finance their daily operations. The companies who want to cover up finances at times when the revenues and expenses are fluctuating due to circumstances mostly use this. Typically, lenders offer it to businesses as an unsecured loan. But, businesses that do not have a reasonable credit history will have to offer some sort of collateral or personal guarantees in order to obtain financing. Working capital loans are also referred as short-term loans that span from 30 days to one year. The minimum funds that you can obtain are $5,000 which can go as high as $100,000 for small businesses and startups.
- Equipment financing: Small businesses and startups are usually looking for equipment financing or loan to purchase or upgrade their equipment to the latest one. However, such local small business loans require companies to make a down payment of at least 20% or more of the equipment price. Moreover, the company does not have to offer any collateral or personal guarantees as the equipment itself serves as the collateral. The interest charged is paid on a monthly basis while businesses have to ensure that they have repaid the loan within two to four years. Depending on the need for your equipment purchase, you can get funding of anywhere between $5,000 and $500,000. In addition to this, your lender may charge you fixed or variable interest rate depending on the amount you have asked to loan.
- Small business credit cards: Another great source of obtaining funds for small businesses and startups is by getting a business credit card. This type of financing option is considered as short-term local small business loans where the interest rates depend on the issuer.
- Merchant Cash Advances (MCA): Merchant cash advances is another great way to finance funds for your business. Typically, this is not considered as a loan as the lender who will provide you with an advance would purchase your future credit or debit card sales. Despite being an expensive option, small businesses and startups prefer it over other conventional and alternative lending options due to its flexibility.
2. Conduct proper research of the lenders providing local small business loans
- Nowadays, the number of lenders available in the market have significantly increased that are willing to lend funding to small business. You can easily find a lender that is willing to finance your business’ financial needs with a simple online search. Some of the lenders that you will find are as follows:
- Online lenders: Multiple online lenders are available to provide loans to businesses an easy online process. Local small business loans such as MCAs have made lives easier for business owners as these can be applied online and approved within a matter of hours. This has become the quickest and fastest way to get access to cash to take care of the financial needs.
- Large commercial banks: Everyone knows about this options – the traditional lenders who do not provide funds to businesses that have less than a perfect credit score. In addition, the application process and criteria to be eligible is also strict even established businesses are unable to get funding through this channel.
- Peer-to-peer lending online: There is multiple online platforms available that are known to be middlemen between the individual or business and lenders. Peer to peer lending has gained immense popularity since the past year.
3. Evaluate how the lender views the credit and risk profile
- It is believed that most lenders make a judgment call on the basis of your credit and risk profile. This is usually applicable to small businesses and startups who have a little or poor credit score and history. A lender of any local small business loans will carefully review the following factors. Therefore, it is important for a business owner to know before applying for a financing option.</;i>
- Credit score/credit report: This is the most important factors that determine your eligibility criteria. Every lender wants to know your credit score and will look at the credit report to see how timely your business repaid the loan. Therefore, make sure that you report does not have any flaws before handing it over to the lender.
- Outstanding cash flow and loans: Do you have any outstanding loan or cash flow that may impact your application? Local small business loans’ owners review this to determine if you have sufficient cash flow to repay the current loan or the next loan that you are planning to obtain.
- Assets available: Every lender wants to know the assets of your business including cash in hand, accounts receivable, and other related items. This information comes in handy while deciding collateral or in determining the next step in case you default on the payment.
- Time in business: Even for a merchant cash advance, it is important for you to be in business for a minimum of six months or so to be eligible. Typically, lenders prefer businesses that are operational for many years – but, that is a minimum in case you recently opened (this is more applicable to restaurants and related businesses).
- Investors in the company: Your business would be more favorable to the lender if you have professional investors on board who can help you make an informed decision.
- Financial statements: All lenders go through the financial statements to see how your business is performing throughout the year.
Merchant Cash Advances – The Right Solution for Your Business!
After reading about all the tips mentioned above, it can be said that merchant cash advances are the safest bet when you are deciding about local small business loans for your business. The primary reason is that this type of financing option has the least requirements where business owners do not have to be concerned about having a perfect credit score. Apart from this, the process is simpler than ever. All you have to do is visit the website of a reputable MCA lender and fill an application online. Once the application is submitted, the lender will review and give a decision within a few hours to few days – depending on the number of applications received.
The funding that you can receive will be three to seven times higher than you average monthly credit sales volume. This is higher than what usually you can get from other financing options available in the market. Merchant cash advances have changed how businesses can obtain funds in a short span of time. The repayment terms are easier and flexible as well designed to meet your needs.