Last Updated on July 6, 2021 by Arina
Guide To Small Business Loans For Startups
Hello friends how are you all? Today we are going to talk about the Guide To Small Business Loans For Startups. Running a business successfully is not easy. It requires skills, human resources, management, and most of all: the right amount of money. Business owners at times struggle with financing issues. Some face problems in starting their business whereas some face issues in having enough money to meet their day to day operations. To overcome this issue, they can get a loan.
Small business loans For Startups are a convenient option in such cases. For many small business loans, the primary way for repayment is the cash flow of the business. The Small Business Loan is explained in detail below for making it easier to compare Loans and apply for business loans that are suitable for the business.
Small Business Loan Application
To start any small business with a small business loan, the owner has to fill an application so that the lender goes through it as a request and grants the desired loan. Before giving the application, the owner will have to present a proper business plan so that the lender gets an idea about where the money is going. It also satisfies the investor that his loan will be paid back. Therefore, there should be a proper business plan before applying for a small business loan. It should be mentioned in the business plan that why and where the extra funding is needed, such as:
- The money granted will be used to get off the ground
- The money is required to fulfill other regular expenses
- The money will be invested to introduce a new product or service to the business.
Terms and Condition for Small Business Loan
Before the loan is granted, the owner will have to understand the applicable terms and conditions first. There are many options from where the owner can get the loan but all of them come with different terms and conditions. Some may charge a huge amount of interest while some might offer deferred interest that makes the loan quite unappealing. The owner should compare two or three similar options based on the annual percentage rate and then select the best suitable option.
Small Business Lenders
The small business loan lenders fall into three categories:
It is a tough task to get a loan from the bank for the business because it requires the owner to have a good credit history. The owner has to satisfy the bank that putting money in the business is not a risk and that the business is not in desperate need of money. The bank loans operate on debt financing rather than the equity model where it can sell the ownership of stock in the company for funds.
Microloans are small and short term loans given to the individual to startup their business. Mostly Non-Profit organizations are microlenders. The microlenders at times along with the loan also provide free assistance, training, and mentorship programs. The main aim of microlenders is to provide loans to entrepreneurs who are not eligible to get a loan from traditional banks.
Alternative lenders are online-based private companies instead of banks or credit unions that give loans to the business owner for their small businesses. Alternative lenders are characterized by speed, accessibility, and flexibility as compared to traditional banks.
Rejection of Small Business Loan Application
There are several reasons for the lender to not accept the loan application, such as:
No Proper Business Plan
If the applicant does not have a proper business plan, the application is immediately rejected. No one is interested in investing his/her money in a business that does not has a successful plan.
Bad Credit History
No bank will be interested in giving a loan to someone who already has a bad credit history.
Bank wants to be assured that the owner will be able to pay back the loan before approving the application. Therefore, the applicant should regularly calculate the cash flow so that he/she is prepared in case of emergencies and can approach the lenders with confidence.
When making the loan application, try to include some emotions or make a human connection. Lenders get many applications so come prepared with an organized plan for the loan appeal.
Covid 19’s Impact on Small Business Loan
COVID-19 has caused unexpected challenges in human lives all over the globe. The government has forced people to stay at home and change the working paradigm to virtual collaboration and work from home practices in every sector. Work from home has been the only option for organizations to sustain the businesses during lockdown with the on-going pandemic. Many employees were laid off from services, compensation and salaries were cut down, even though the organizations and businesses that could not fulfill the orders and adapt to the work from home culture have been closed in this pandemic. Because of the work from home orders, many small businesses have been shut down and the small business owners are struggling with cash flow. They are not thinking of expanding their business, they just need funds to stay afloat. Currently, there are two loan programs to assist such business that have been negatively impacted by the CoVid-19:
PPP (Paycheck Protection Program)
PPP helps businesses to pay workers who are on payroll. SBA forgives loans if all employee retention requirements are met.
EIDL (Economic injury Disaster Loan)
Through Economic Injury Disaster Loan, $2 M of financial loans is granted. The actual amount is based on the economic injury the business has faced. It is a kind of disaster assistance for helping small businesses to operate usually.
Both PPP and EIDL offer partial or full loan forgiveness. EIDL forgiveness is automatically provided the business has spent the money properly and meets the requirements.
Anyone willing to start a small business should consider finance at first. Bank and private loans, both come with a set of advantages and disadvantages. Some give ample time to pay back while some come with lesser terms. It is upon the owner to juggle between the options wisely and choose the best suitable type of loan.
So, friends, we hope that you enjoy our article and this article will also help you to know the Guide To Small Business Loans For Startups. Please give us your feedback in the comments.