May 23, 2022 | Last Updated on: July 6, 2023
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Business financing helps small business owners meet their goals, and when the livelihood of your business is on the line, time matters. To get the business funding you need now, just follow along with the steps in this article to make the loan approval process as fast and simple as possible.
Succeeding in business requires good decision-making ability. Considering loan options is overwhelming for many small business owners because they are not sure if the benefits outweigh the risks. If you think it is a good time to secure business funding for your company, consider the following pros and cons of a small business loan.
Business funding will increase the balance of your business obligations. A balance sheet is a common financial statement produced by businesses monthly and annually. The balance sheet shows what a company owns (assets) and what they owe (liabilities). A long-term or short-term loan increases the balance of the liabilities, reducing the owner’s equity in the company and decreasing ratios like the debt-to-income ratio (DTI) used to evaluate the financial health of a business.
Typically, the repayment terms of small business financing require monthly payments. The payments are comprised of a combination of principal, interest, and fees, depending on the original loan agreement. Any payment made by the business will decrease the cash flow of the business. When applying for a loan, the lender will ensure that the revenue and cash reserve of the business can sustain the monthly payments.
A loan agreement is a legal obligation. In the unfortunate event that your business fails, the loan balance will still need to be repaid. Business financing should be reserved for entrepreneurs that have committed to their business plan and are able to sustain the time commitment of business funding.
Business loans provide fast cash for small business owners that need to invest in their business to become or remain operational. The proceeds from a business loan can be used to secure a business location, purchase inventory, repair equipment, or hire the required staff. During the life of a business, some business owners need to increase working capital due to seasonal fluctuations. Business financing can give you the funds you need to get started or keep things running.
Business financing can enable the growth your company needs to achieve its goals. A small business loan can facilitate physical expansion by providing the funds needed to expand your current location or secure brand-new office space. A small business loan can also help a business grow by financing a new marketing campaign or experienced talent. Increased income and profits are often the results of a smart financial investment.
Securing business funding contributes to building a healthy business credit history. A business credit score is positively impacted when payments are made on time. A business is analyzed by lenders, investors, and even customers by their credit history. A higher credit score will open doors for future funding opportunities.
Business loans provide fast funding that can be necessary for some unique opportunities. Whether it is purchasing bulk inventory at a discounted rate or exploring a time-sensitive franchise opportunity, timing is everything. If a potential business opportunity has a positive return on investment, the cost of a business loan is a worthy investment.
The first step in getting business funding is knowing where to start. There are two main options when it comes to the best small business loans: traditional or online lenders. Traditional lenders include banks and credit unions. Online lenders, also called alternative lenders, include online lending marketplaces and private financing companies. Both options are good solutions, depending on the circumstances and priorities of the borrower.
Online lenders are preferred by borrowers who:
Traditional lenders are preferred by borrowers who:
Deciding on the best loan for your business needs can be an intimidating process. There are many different types of loans for startups, nonprofits, small businesses, and established companies. The type of loan that is right for your business’s situation depends on several factors. Keep reading to learn more about some common types of business financing.
SBA loans are partially guaranteed by the U.S. Small Business Administration and are a great choice for small business owners that may not qualify for a traditional bank loan. The SBA offers a variety of loan programs, like the SBA 7(a) loan, disaster loan, or microloans, depending on the amount of funds and repayment terms desired. SBA loans can be used to increase working capital, make large purchases, refinance high-interest debt, and more. Borrowers often choose SBA loans if they can meet the strict approval requirements and lengthy application process because they offer low down payments, lower annual percentage rates, and longer repayment terms.
Equipment financing, also known as an equipment loan, is a funding option for small businesses that need to purchase new equipment or repair or replace existing equipment necessary for the business to succeed. Equipment financing can be used for computer software, vehicles, construction machinery, a pizza oven, or any other business equipment. The loans often offer low down payments and have flexible eligibility requirements because the purchased equipment acts as collateral on the loan. The repayment terms of the loan generally coincide with the expected useful life of the asset.
A term loan is a type of traditional financing that can meet short-term or long-term financing needs. Borrowers that are approved for this type of financing receive a lump sum payment upfront and then make regular payments according to the terms of a predictable repayment schedule. Term loans can be used for large purchases, cash flow fluctuations, or operational expenses. Term loans can be secured, where some form of collateral is held by the lender, or unsecured. This type of loan often appeals to small business owners because it offers access to the full loan amount upfront and can be repaid early, sometimes with little or no prepayment penalty.
A commercial real estate (CRE) loan gives the borrower access to a large amount of capital. The real estate that is purchased is then used to secure the loan. CRE loans can be a great financing tool for securing land or a new structure, expansion, a new business acquisition, or funding renovations. CRE loans often allow lower interest rates than other term loans, so they are a great choice for business owners that want to refinance a previous loan or project. There is a common misconception that getting a CRE loan is a long and painful process, but Biz2Credit offers a fast application process and a decision in as little as 2 to 3 business days.
A merchant cash advance (MCA) is one fast funding option for business owners that sell goods or services. The MCA gives the borrower a lump sum of capital upfront, and the loan is repaid by future credit card sales. Like invoice financing, which uses unpaid invoices from the accounts receivable balance of a business to secure the loan balance, merchant cash advances carry higher interest rates and fees than other funding options. Because of the higher interest rates, merchant cash advances are a good financing option for business owners with bad credit or startup entrepreneurs.
A line of credit is revolving credit, like a business credit card, where the lender approves a maximum amount of credit limit. The borrower can draw as much as they need up to the limit at any time throughout the term of the loan. A benefit to this type of financing is that interest is paid only on the amount of funds that have been withdrawn. Having a line of credit is a smart financial decision because it allows small business owners to have instant access to capital.
The eligibility requirements for a loan depend on several individual factors, including the borrower and the type of loan. Small business lenders evaluate the creditworthiness of applicants based on the following:
The lender you choose to work with has an impact on your loan eligibility. For example, online lenders have a higher success rate securing funding for startups and individuals with less than perfect credit histories. Online lenders also partner with multiple financial institutions which gives their borrowers more options and increases the likeliness of approval.
The loan product you are applying for also impacts eligibility requirements. Traditional bank loans and SBA loans generally require higher credit scores and a longer business credit history. Business lines of credit and term loans have moderate eligibility requirements, but the repayment terms are influenced by the availability of a down payment, collateral, or a personal guarantee. Financing options like invoice factoring and merchant cash advances are good options for borrowers with lower credit scores but may have higher interest rates. The fastest way to understand your individual eligibility requirements is to speak with a lending expert.
If you’ve decided that a business loan is right for your small business, you may be wondering how fast you can get through the process. The time it takes to get a loan funded depends on the choice of lender, the type of loan, loan amounts, and the eligibility of the borrower. The good news is that some lenders and loan options offer same-day funding. If you want to speed up the loan approval process, there are three steps you can take to see the funds in your bank account sooner.
Prepare loan documents ahead of time. The documents you will need for the loan application process will depend on several factors. The lender you work with can give you a list of documents you may need to provide, but if you want to speed the application and approval process up there are some standard documents you can have on hand ahead of time including:
Choose an online lender. Traditional lenders, like banks and credit unions, can provide great options for borrowers, but they are not the fastest route. Online lenders have a history of being able to provide loan approval details within hours of applying. Since online lenders like Biz2Credit, specialize in providing fast funding to their clients, the wait time is drastically reduced in comparison to other business lending options.
Be available for follow-up questions. It is not uncommon for a lender to request more information after you’ve submitted your loan application. To expedite the process, be sure to be available to answer questions and send any additional requested materials.
To get fast funding for your business, choose the right lender, prepare documents ahead of time, and be available for follow-up questions. It is possible to apply for a loan and receive funds in the same week or even day. Manu Rampal, the owner of East Meadow Wine and Spirits, was able to get his loan funded in less than 48 hours after qualifying using the funding experts at Biz2Credit.
