What To Know When Considering Small Business Loans

By Janelle Witting on January 11th, 2016 / Comments

Crowdfunding and investors, venture capital and seed funding – all are buzzwords thrown around in the startup world focusing on getting the money to start your own business. Securing the funds to get your business off the ground can seem like a daunting, overwhelming task. (In some cases, it is!) In reality, many businesses start out with a small business loan.

Small business loans help the new company buy supplies and technology, hire employees, and secure space and services. Knowing the basics of business loans, when they’re a good fit, and how a loan could help are key factors in launching a company.

The Basics

It’s important to start the lending process early, because it takes time. Waiting until the last minute could jeopardize launch plans, so researching a lender ahead of time is critical. Smaller banks and credit unions often have more flexible lending standards, while big banks may offer cheaper rates – so the lender you choose should depend on the individual needs of your business. You may also get rejections – potentially lots of rejections. Don’t give up, but consider reevaluating your strategy if this keeps happening to you.

When It Fits

A small business loan could be a good fit if you need money for a sound business purpose and have excellent personal and financial history. Having reasonable collateral will also make you a good candidate, since some lenders will not approve a loan without it. Lenders may hesitate to lend to a startup, but if you can make a solid business case for your need and demonstrate that you have the ability to pay it back, you have a higher chance of approval.

How It Helps

In all likelihood, you’ll still have to find ways to get money from other sources. However, a small business loan can serve as an emergency backup fund, extra money to upgrade technology and facilities, or to bridge the gap between what you can rustle up from other investors and the total cash you’ll need to launch. Just make sure you’re in the best financial shape possible before taking the big leap – the last thing you want is to end up in a position in which you can’t pay back the loan.

Obtaining a small business loan can be a fantastic way to get your business off the ground. Arming yourself with some basic knowledge and a thorough understanding of the process should help things go smoothly. Perhaps the most important thing to remember is that a reputable lender will ensure that you fully understand everything involved with obtaining the loan. If you feel uneasy, search for someone you can trust – after all, your business (and livelihood!) is on the line. 

 

About the Author

Janelle Witting

Janelle Witting

Janelle Witting manages social media for Michigan First Credit Union, connecting important financial issues with the realities of day-to-day life. When she’s not filling her head with useless trivia, you can find her reading books, watching dorky television, pretending to work out, or playing with her perfect dogs.