If you're thinking about starting your own business, you may wonder where to get the start-up capital you need to make it all happen. Before you decide to take out a business loan, it's crucial to understand how loans work and how they can benefit your business in the long run. This guide on how to compare small business loans will walk you through securing a loan from one of the many lenders out there—it's quick, easy, and painless.
If you have a steady income, excellent credit, and no debt, you may qualify for a small business loan with better terms than your bank offers. Although most significant banks offer small business loans, not all do. One alternative is a direct lender. Direct lenders can be financial institutions or online lenders that match borrowers with multiple potential lenders. The downside of using an online lender is that rates can be high, and there may be hidden fees.
Types of Business Loans Available
There are several types of business loans you can choose from, depending on your specific needs. The most common business loan types include
1. Asset Based Loans – These loans are collateralized by your business's assets, such as equipment or inventory. If you're looking to finance a large purchase, an asset-based loan might suit you.
2. Lines of Credit – These loans are similar to asset-based loans but differ in a few ways. Instead of collateralizing your business's assets, they're secured by a lien on its accounts receivable.
3. Term Loans – According to Lantern Credit by SoFi, "Term loans are a" flexible form of financing that can be used for almost any business need." A lien secures these loans on your business's assets and comes with fixed repayment terms.
4. Commercial Real Estate Loans – These loans are secured by commercial real estate and are used to finance commercial real estates projects, such as new construction or renovations.
5. Merchant Cash Advances – These loans are secured by your business's credit card processing accounts and can be used to finance inventory, purchase equipment, or make other business investments.
Factors Affecting Loan Approval Rate
The approval rate differs from one business owner because many variables determine which loans should be approved and which ones won't make it through. For example, those who had trouble getting approved in the past may want to ask their loan officers about these factors.
Typical Processing Time by Lender
Getting a small business loan can be a time-consuming process, so it's important to know what to expect in terms of turnaround. For example, if your business is applying through an online application with a lender, they typically claim they will have you approved within minutes and funds disbursed quickly. However, financing options on big platforms might not suit all businesses; individual lenders may offer faster funding times or more competitive rates than these platforms.
Borrower Benefits and Perks
Loan perks and benefits can make a borrower's decision more straightforward, even with minor advantages in an otherwise comparable loan. For example, certain personal loans get you access to your FICO score during and after approval. The higher your score, the more favorable interest rates you get on loans.
Financing your small business can be tricky. There are many options out there, but you must choose carefully. Some loans are more suitable than others, depending on your business needs and financial situation.