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How Long Can You Get A Business Loan For
Despite the ongoing romance of rags-to-riches success stories, many entrepreneurs have at least some help building their startup.
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Ambition and courage are important, but unfortunately, these entrepreneurial traits don’t guarantee the immediate cash flow that a business may need. What you have to consider is an important start-up financing for starting a business: the business loan.
Business loans are one of the most common forms of financing for founders who want to start a business or support their business needs. However, deciding whether or not to apply for a business loan is an important decision for any business owner and should not be taken lightly.
This post looks at the many factors that can help you decide if applying for a business loan is right for you and your business and walks you through the steps to obtain a loan.
Sometimes it takes more than sand and muscle to achieve your business goals. You also need money. Business loans are a common way for small business owners to fund their operations when cash flow is lacking.
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In fact, more than 61,000 loans were issued to small business owners in fiscal 2021, according to the US Small Business Administration (SBA).
Not sure if a loan is right for you? Here are some obvious signs to look out for:
Applying for a business loan takes time. Regardless of what type of loan you are applying for, there are some steps you can take to prepare yourself before applying.
Depending on the lender, applying for a business loan can take anywhere from a few minutes to a few hours. However, making a potentially significant financial commitment when starting a new business is an important decision, especially for entrepreneurs launching completely untested business ideas.
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Before applying for a business loan, use a loan calculator and get a good idea of how much you will need. To answer that, you need to determine why you need a business loan.
For example, you run a small but growing catering business and you want to open a single brick-and-mortar location where you want to make and sell a variety of baked goods.
With an average kitchen equipment cost of $95,000, our hypothetical catering company is already evaluating a large business loan to adequately outfit a kitchen — and that’s before commercial real estate and licensing costs.
When estimating your business’ capital needs, it’s important to consider costs beyond the initial investment. A full professional kitchen can average $95,000, but what about:
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It’s easy to focus on the sticker price of new devices, but there are many things to consider. This can be particularly important for industries with unfamiliar margins, such as hospitality, which may take longer to reach profitability, as it directly impacts how easily the borrower can meet their payment obligations.
🛠️ Take action: use our business loan calculator to find out how much you need to borrow and how much it will cost you.
Most traditional business loans offered by private lenders will only consider a loan application if it is accompanied by a detailed business plan. A solid business plan is your company’s roadmap for the future. If this is not the case, it is very difficult for a potential lender to assess whether your idea is commercially viable or not.
In recent years, several online lenders have emerged that either do not require formal business plans as part of the loan application process or have eliminated the application process altogether.
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For example, Capital has no application process; Just as Amazon Lending pre-qualifies some Amazon merchants, eligible businesses are pre-approved based on a number of criteria related to their deals, including total sales.
This type of funding can be a great option for established companies looking to expand their footprint in a financially sustainable manner.
I didn’t want to deal with the traditional lending process, but wanted to focus on the business. A traditional loan seemed too onerous and restrictive. The mentality of capital towards him is different. It’s very easy. Tracey Hicks, Founder of All Things Real Estate
However, many lenders that do not require a formal business plan as part of the application process offer short-term loans with high annual percentage rates (APRs). High APRs mean that most loan payments are paid with interest rather than principal.
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💡 High-interest rate loans often require higher payments or longer repayment periods, or both. The APR for these types of loans typically starts at 24%, but can be much higher for borrowers with bad credit.
Ultimately, only you can decide whether you need a business plan to support your small business loan application. If you do, you can download the handy template below to start creating your business plan.
A business plan is often used to secure funding, but many business owners find it valuable to write a plan even if they never work with an investor. That’s why we’ve put together a free business plan template to get you started.
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The next step is to decide how to repay the loan. Be realistic about the amount you can afford each month. Consider external factors like seasonal slowdowns, supply chain disruptions, and even societal shifts.
Your credit history shows how responsible you are in paying off your debts. This directly affects interest rates.
Small business lenders understand that every business is unique, which is why they offer so many loan options. Each credit option has a different term. If you want to take out a loan, find out how long it will take to pay off the loan.
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💡Tip: If you want to redeem the loan early, check if the lender has a prepayment penalty. You don’t want to spend extra money to get out of debt.
Talk to a financial advisor before deciding on a loan. You will get to know different financial institutions and their loan programs. As a result, they can provide you with more personalized advice on which financing options are best for your business, helping you plan to pay off any debt you may have incurred and be profitable over the long term.
Once you have decided to apply for a business loan, the next step should be to decide what type of financing is right for your business and growth goals. There are many types of business loans, each with their own benefits.
The most common type of business loan is a term loan. Term loans, typically repayable over a period of two to ten years, are a reliable and common form of business financing.
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Small Business Administration (SBA) loans are very similar to standard loans offered by private lenders. The main difference is that SBA loans are serviced by lenders who agree to offer more favorable terms to groups who may struggle to obtain traditional small business finance, such as minority founders and business owners.
The term of SBA loans can be much longer than a traditional term loan; some have maturities of up to 25 years. SBA loans are generally smaller, starting at $10,000 on the low end, and the average SBA loan amount is up to $350,000.
SBA loans are generally slightly more forgiving of credit and require a minimum score of 650. While these loans are definitely more affordable for small businesses, an SBA loan can still take up to 90 days to process.
Online lending has become increasingly popular in recent years as entrepreneurs look for alternatives to traditional business financing. These are loans offered by lenders like Funding Circle and OnDeck. They are often unsecured, meaning no collateral or assets are required to receive the loan.
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These loans can range from $5,000 to $250,000 for short-term loans and up to $500,000 for long-term loans. This makes them a solid choice for business owners who need modest funding.
This type of loan almost never requires collateral, making it ideal for entrepreneurs who do not have specific assets. And in most cases, decisions can be made in days if not sooner; Some lenders offer same-day decisions.
However, short and long-term online loans are not without disadvantages. Depending on the credit rating, the effective annual interest rate on these loans can be very high – in extreme cases up to 99%.
Companies that rely on invoices for payment often have to wait a long time – up to 90 minutes – before those invoices are paid.
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