Small Business Loan
Biz & Co

Growing Your Startup with Small Business Loan

Starting up your own business is a very exciting investment. You get to direct your talents and ability to create an industry that you believe in. However, the process isn’t that simple, it’ll require dedication, time, and of course, money as your starting point. Aside from those, you’ll also most likely need to have a secure loan to get started.

Combining alternative and traditional lending is one of the best ways to gain funds to have a successful business. If you want to know where to look for startup loans, and how you can get your startup up and running, you should continue reading down below.

Business Loans Option

Most business owners usually need to use more than one financing source, just to get their startup off the ground and successfully running. And some of the common options include raising money, using some or all of your savings, or business loans.

Now, below are some of the best small business loan alternative options, which are best suited for small business owners and startups:

Microloan Program

The Small Business Administration (SBA) offers three loan programs for financing small businesses. These are the CDC/594 Loan Program, the SBA Microloan Program, and the SBA 7(a) Loan Program. We will first start on the microloan program.

What is the Program All About?

The average size of small businesses bank loan is around $130,000 to $140,000. But what if your small business doesn’t need that much?

Unfortunately, you’ll have a hard time entitling for traditional bank loans. The amount of your loan should be worth the bank’s costs for servicing that loan, and most of the time small business loans aren’t worth the service.

However, in 1992 the SBA has stepped in to complete the gap and allow startups to find the financing they need. If you only need around $5,000 or even less, then the Microloan program is the best option that you can pursue your startup.

How Does It Work?

From the word “micro”, microloans are usually small short-term loans that come in a low-interest rate. It’s usually around 8% to 13%.

If you are a startup that has a very low capital condition, you just might qualify for the SBA Microloan. Generally, the microlenders offer a loan that’s between $500 to %50,000. Though averagely, the SBA-backed the microloans average at around $13,000.

As with any of the of the SBA loan, the amount that you’ve borrowed will directly be negotiated with the intermediary lender. The amount you’ll get will depend on how you plan to use the funds for your small business.

How Long Can I Borrow?

Your microloan term length will be determined similar to any of the traditional term loans, which are by the needs of the borrower, loan amount, standards of the intermediary lender, and by the use of funds. However, SBA will set a maximum of 6 years as your term length.

How Can I Apply for the Program?

The program offers some SBA startup loans out there, and if you are convinced that this is the right startup loan for you, then you can follow some steps to begin your application for SBA loan.

Community Advantage Loans

Most entrepreneurs find it hard to get a small business loan, but it is more challenging for business owners who don’t have enough access to resources that they need to secure a business loan.

Therefore, in 2011 the SBA has created an SBA community loan program to increase the access to capital for startups, which operates within underserved communities.

What is it About?

The program is created to encourage the lenders to offer a much lower-dollar loan to all startups and small businesses.

It is a national guaranteed term loan of around $50,000 to $250,000, which is administered by lenders who are based in the community, who also have a history of helping small businesses to start in powerless communities. The organizations consist of certified development companies, SBA-authorized microloan intermediaries, and community development financial institutions.

Like most of the SBA loans, the community advantage loans are specifically an affordable loan product that startup owners can afford. These loans usually range from 7% to 9% and have long maturities that usually last for 7 up to 10 years.

How Can I Secure My Small Business Loan?

Startup loans are very competitive, according to some report, big banks only approve 24% of their applications for business loans, and small banks accept 49%. So if you want to increase your odds in securing a startup loan, you should follow these tips:

1. Prepare a Business Plan

When you are applying for a loan, you’ll need to show a detailed business plan, which will show the lender that you have considered carefully all the expenses that would be associated with your business, and have researched the service or product demand to make sure you’ll make a profit.

The plan that you are about to prepare should be done right, especially if you want to hook your un-launched business to a lender. Also, include a projected repayment plan that corresponds to your expected growth.

2. Good Credit Score

If you have a good credit score, you’ll more likely land on a business loan. In addition, if you have good credits, you will also be qualified for a lower interest rate. This would mean that you’ll have more money to put in your businesses’ daily operations.

3. Ready Some Funds

Banks and other kinds of financial institutions would most likely to take a look at your assets, especially if they are deciding to deny or approve your business loan. Having established funds to pay a portion of the costs to have your business running will not only appeal the lenders, but it would also help save you money on interest over time, and you’ll be able to take out a smaller loan.

As an example, if you need $100,000 to grow your startup, you should at least have set aside $30,000 before applying for a loan.

Conclusion:

Looking for a loan when starting a business can be difficult, especially if you are just about to establish a new business. Therefore, to make it easier for you to get a loan, make sure to follow the mentioned tips above to look and secure a loan. Also, make sure to choose the best small business loan for your business to be able to grow your startup.