Guide to Online Small Business Lending

Business Owners’ Guide to Online Small Business Lending

Starting a small business can be an extremely lucrative financial decision, but it can also be difficult to manage if you do not have a vast amount of startup capital. There is a way to get around this, however, and this involves getting a small business loan. The guide provided below is designed to help you get your business a small loan.

The Types of Loans You Can Get

Not all loans are equal. Each type of loan has its own requirements, benefits and downsides, so you need to first decide the sort of loan that your business needs the most. These are some of the loans that you can get from the various lenders in the market:

Small Business Line of Credit

Getting a line of credit is a very smart thing to do. It would give you access to a considerable fund that you can withdraw from as and when needed. The best thing is that you don’t have to pay interest until you actually use some of the funds available, which makes this the perfect rainy-day fund for small businesses that are still getting on their feet.

Working Capital Loans

This is a great short-term loan that a business can use to keep itself afloat in the off season. A lot of businesses are only active during a specific part of the year, so loans like this can help them keep their operations running when they don’t have money coming in.

Small Business Term Loans

This is more of a standard loan. It involves borrowing a set amount that you need to pay back over a specific period of time. You can also pay it back in one go at the end of the term.

Equipment Loans

If you are starting a business and need capital to buy equipment that you would need to start earning money, equipment loans are a great way to get started. You need to save up about twenty or so percent of the required amount, and the lender will foot the rest of the bill.

How to Decide Who to Borrow From

This is a decision that could have a significant impact on your business’s future. The best way to decide who you should borrow money from is to do your research. These are the types of lenders that you can borrow from:

Direct Online Lenders

This is perhaps the most convenient option because it involves a very simple online signup after which the loan amount would be transferred to you. It is quick and easy and a great way to get some capital when you need it the most. This guide is focusing on those types of lenders in particular.

Commercial Banks

Large banks are the traditional place to get a loan, but the process can be rather tiresome and can result in a lot of disappointment if you need capital as quickly as possible.

Take a Look at How Eligible You Are

The first thing that a potential lender is going to look at is your risk and credit profile because this is what will help them ascertain whether they are actually going to end up getting their money back in time. Here is what they are going to look at most of all:

Credit Report

This is your credit history, showing all of the loans you have taken and when you have paid them back. A good credit score is essential if you want to get a good loan in a timely fashion, thereby allowing yourself to get your business up and running as quickly as possible.

Assets

Your assets are a good indicator of how quickly you will be able to pay your debts off, so you can be sure that your lender is going to be taking a very close look at them. Make sure that all of the information is as accurate as possible.

Age of Business

The older your business is, the more likely lenders are to give you the loan you need. This is because they know that an older business will be more established, making it easier for the business to pay its lenders back in a timely manner.

Investors

If you have people who have invested in you, lenders are going to investigate this too. Investors with a good reputation are going to ensure that you get a loan, but investments from people who are not very well thought of might end up making it a little difficult for you to get an adequate loan.

Financial Statements

This includes your profit and loss ratio as well as all of the money you have had coming in. Needless to say, bad financials are going to result in your loan application getting denied.

Getting Your Financials in Order

Before you actually apply for a loan, it is very important that you start looking into your financials and drawing them up as efficiently as possible. One thing that you are going to have to make sure of is that your financials are as accurate as possible. Inaccurate information is going to result in your application being denied and might just end up giving you a bad rep in the market as well, which could be detrimental to the success of your small business in the long run.

One thing you can do is to get your financials reviewed by a CPA. This would give your small business a lot of credibility because it would show that your financials have been thoroughly looked over by an external entity. A CPA can also catch any mistakes that might have been made and would help you rectify them, thus ensuring that you have a higher chance of getting your small business loan.

If you can afford it, try to get your company audited completely. This would give an even better impression and would ensure that everything ends up going as smoothly as possible.

Some Tips to Help You Further

Start Preparing Well in Advance

A common mistake that people make is that they only start preparing for a loan when they need one. This is the sort of thing that results in applications getting rejected because you don’t have enough time to get your affairs in order.

One thing that you can do is to start preparing as soon as you start your business and keep getting yourself audited or at least having your financials reviewed by a CPA so that if the need ever arises, you would be ready to apply for a loan immediately.

Start Fixing Your Risk Levels

If you have a poor credit history, you need to take the loan in the name of someone who has a better record. Low profits can also end up making lenders a little wary of you, which is why you need to start maximizing your profits from the get go so that you have the ability to pay your loans back. Remember, this is going to only help you in the future, and it is one of the most important things that you can look into if you want to be able to keep your business afloat and find success.

Save Up Some Money

While this may seem a little counterintuitive because you are getting a loan in the first place to finance your business and its various activities, one thing that you need to keep in mind is that a lender is definitely going to see what you have to offer before giving you a loan. If you have some money saved up, it would allow you to pay the loan back much quicker, and you would also be able to show your potential lender that you would easily be able to pay them back without giving them too much trouble.

Start Paying Back Quickly

This is the best thing to do if you want to be able to avoid an enormous amount of interest. If you have the option of paying a lump sum back at the end of the loan term, what you can do instead is start putting money aside for your eventual loan repayment as quickly as possible. This way, you would have some money on the side in case of emergencies which you would only use in extreme circumstances, and you would also start making some headway when it comes to paying your loan back in the timeliest manner possible.

Look Into Some Alternatives

Don’t end up thinking that a loan is your only option to get some funding. Another way you can finance your business is through crowdfunding as well as a bunch of other alternatives. Crowdfunding is all about showing what your product can do to a wide audience and ensuring that it ends up receiving the money that it needs to get off the ground. This is a loan in a way as well because you will have to give people their money’s worth, but if you have a product that is truly worth it, this is a great way to avoid paying interest and getting entangled in a loan that you might not be able to pay back.

Reduce Spending

One mistake that a lot of small business owners tend to make when it comes to loans and the like is that they end up spending a lot as soon as they get their loan. This is not the way to do things. The loan is for a specific purpose, which is growing your business, so if you want to be able to make the most of it and pay it back on time, what you need to do is reduce spending, not increase it.

For a period of time after the loan has been taken, cut down on costs wherever and whenever you can. This can prove to be instrumental in turning your small business into something a great deal more profitable, allowing you to expand and grow to your full potential as quickly as possible.

Create Business Relationships

If you are absolutely new to the world of business, getting a loan might end up being a very difficult thing to do. This is because you have no way of showing a lender that you are going to have the sort of capital that would allow you to pay them back in a timely fashion. Hence, one of the first things you are going to have to do as a small business owner is to start making friends in your industry.

One way to do this is to go to conventions and the like. This would allow you to meet people who work in a field similar to yours and who would be able to vouch for you so that you can get the loan you need. Having contacts can also help you in a variety of other areas in your business, so this is something that would be beneficial to you overall.

Take Your Time

Another mistake that a lot of small business owners make is that they take a loan as soon as their first application is accepted. If you want to ensure that you get the best loan possible, try to take as much time as possible.

It is understandable that in a lot of situations, you are going to need money as quickly as possible, but it is important to note that being a little patient can help you a great deal in the long run. You might end up finding a better deal with a lender that would offer you more money or a lower interest rate. There are a lot of lenders out there and as long as you have your affairs in order, taking your time and seeing what options you have can only be a good thing for the future of your small business.