Small Business Loans

Small business persons feel the need for loans when they are short of investment at the time of start-up or when they find their business can do better if financed. Small businesses can approach US Small Business Administration (SBA) for loans tailored for different needs of businesses.

Critical Analysis of Business Loan Needs

When it is time, you know you can’t proceed without financing either the expansion or augmentation of your business. But many conditions and issues need addressed critically at this stage.

1. If yours is a start-up, it’s an uphill task as it is generally deemed that your credit history is still to develop. So much so, lenders perceive you as a risk. Financing most part of it through friends and relatives plus own resources augers well initially by lowered interest burden.

2. If the loan is for working capital, chances are better for you on following counts. You have credit history, credit score, possible assets for collateralization and business experience plus ready market/orders.

3. Business expansion loans are based on your projected growth in turnover and profit margins.

4. Loan processing times play crucial roles in choosing loans and lenders. Choosing lenders that take longer may harm your business.

5. A line of credit can suffice working capital needs some times. Here the rate of interest will not burden much as you pay only for the used portion.

6. Nature of the need more or less decides the type and tenure of the loan. For example. Working capital requirement may be taken care off by line of credit; equipment or real estate purchase requires a long term loans (Basic 7 (a) loan guarantee) etc.

7. Also playing critically here is where you hunt for loans. Grants, SBA guaranteed loans have different interest rates, documentations and processing than private institutions which process faster but have stringent terms and conditions.

Loans benefit by retiring old debts at new, relaxed payment terms because of consolidation. If this is your intention, highlighting the different payables contrasted against each other stands a better chance. Lenders are quick to catch this point as the accrued benefits are in an unambiguous state.

Rather than anything, it is your innovativeness which opens avenues for loans. Rationalizing may even reduce the need from the original loan estimate.

Customer: Fine thank you, yourself?

Bank Manager: I am very well, thank you. What can we do for you today?

Customer: I need a loan for my business.

Bank Manager: How much do you need?

Customer: Fifty thousand dollars.

Bank Manager: What do you need the money for?

Customer: I need to buy and equip two new vans and take on two extra employees.

Bank Manager: What fraction of the cost does this fifty thousand dollars represent?

Customer: A half. My business account currently has a balance of sixty thousand dollars. I will be using most of that.

Bank Manager: How long will you need the money for?

Customer: Two years. That should be long enough.

Bank Manager: How will you repay the loan?

Customer: Having two extra vans and drivers will mean that I can expand the business and take on business that I have been turning away for the past year. I will use some of the profit I make from the extra business to make the repayments.

Bank Manager: Every business needs to borrow money from time to time. Businesses that are not borrowing money are not usually being well run. Even the largest of companies borrow money. Countries borrow money, so why not companies?

Customer: I do not like borrowing money.

Bank Manager: A company is usually borrowing to pay for investment. The income generated by the investment will more than pay off the loan. Small companies need to invest, and banks realize this. Banks are always willing to consider a loan to a small business. After all, that is where the bank makes its money, on the interest and charges made for loans. I need to be confident that the company can repay the loan, obviously.

Customer: Oh, I can see that.

Bank Manager: Your business income has been growing steadily over the past three years and I was going to phone you to see if you needed a loan to expand. Your timing in asking for an appointment was perfect.

Customer: OK. That is all then? Is it that easy?

Bank Manger: I will post the loan papers to you, just fill in the details, sign them and return them to us. We should be able to pay the loan amount into your account by next Friday.

Customer: That is great. Thanks