Compare Small Business Loans – BUYERS GUIDE
How Much Does a Small Business Loan Repayment Plan Cost and What to Look For:
The cost of business loans is dependent on the size of the loan that you take out, and the total cost in fees and interest paid over the life of the loan. Small business loans carry an interest rate averaging prime + 2.5%. Repayment could range from as little as $210 to as high as $10,000 or more. The factors are simply too diverse to provide a hard price estimate of how much obtaining a business loan will cost. However, by understanding what to look for in a loan, you can find strategies to reduce the total amount the loan will eventually cost you.
What You Need To Know About Small Business Startup Loans
Are you ready to get a loan for your small business? We’re here to give you advice. Read here for what to know about small business startup loans.
Did you know there are over 28 million small businesses in the United States?
Small businesses are the basis of the American economy.
And for many Americans, becoming a small business owner is an exciting new venture.
But most people don’t have the cash at hand to start their new small business.
If you are preparing to get a loan for your small business, you may be wondering where you should start.
Read here to see everything you need to know about getting small business startup loans.
Small Business Administration Loans
The Small Business Administration offers loan help to those who need it.
This should be your first stop when trying to get small business startup loans.
There are many benefits to obtaining help from the SBA. While the Small Business Association won’t provide you the loan themselves, they will help you obtain one through another lender.
The great thing about obtaining loans through the SBA is that you will get assistance to borrow. The SBA has partnerships with lenders.
This partnership gives the banks and lenders reassurance that their loans will be paid back in full.
Going through the SBA is an excellent way to obtain your small business loan. But like any other loan process, there are requirements that you have to meet in order to be approved for one.
Some requirements include:
- Failure to get a loan elsewhere – This is one of the major stipulations in getting an SBA loan. If you have tried to get a loan from a personal bank or elsewhere, and failed, then you are able to go through the SBA.
- Collateral – Most loans will ask for either a down payment or collateral, such as an owned home.
- Size requirements – The government has strict guidelines as far as business size goes. Generally, your business must be smaller than 500 employees. However, this number can change depending on the industry your small business falls under
- A business plan – Most small business loans that you try and get will require you to have a detailed business plan. This details any past, present, or future business plans.
Depending on which type of SBA loan you apply for, you may be required to meet more specific guidelines. We’ll take you through the types of loans that the SBA offers.
Types of Loans
There are several types of loans that the SBA offers.
- 7(a) Loan – This loan is a super flexible loan. It allows you to purchase anything needed for your small business. This can include furniture, machinery, and equipment, or the real estate for your storefront. There are several types of these loans, depending on what you need for your business.
- 504 Loan – This is a fixed-rate loan that allows you to purchase real estate or equipment for your business. This loan works by you supplying at least 10% of the loan, while a lender supplies 50% of the loan. The remaining 40% of the loan comes from a Certified Development Company.
- Microloan – These types of loans are short-term loans. They will fund up to $35,000. They are provided through approved microloan lenders.
If you are looking for a loan that doesn’t have as many requirements, you may want to opt for a conventional bank loan.
Conventional banks offer small business startup loans, but they are a little more difficult to get.
Conventional small business loans from an institution generally have much lower interest rates.
They also don’t take as long to approve as an SBA loan would. This is because the government is not involved and the requirements are not as strict.
As stated previously, there are not as many requirements with conventional bank loans. However, they are still relatively hard to get.
The requirements for a conventional bank loan include:
- Excellent credit score – With the financial crisis of 2008, it is more difficult to get a bank loan. So if your credit score is perfect (or close to it), that’s a huge benefit.
- Documentation of finances – The bank wants to know that you aren’t going to be a risk for them. Since you don’t have the government to back you up, you have to prove that you are financially able to repay the loan. Many banks want at least three years of financial statements and maybe even proof that you can handle a business.
- A business plan – Even with bank loans, you will still need a very detailed business plan. If you are already in business, they will want to know your current business structure and tax information.
Small Business Bank Loans
Just like SBA loans, there is a variety of conventional bank loans that you can apply for.
Some of these loans include:
- Working capital loans – These types of loans can have higher interest rates, but they are great for businesses already in place. A working capital loan works for businesses that need additional funds while they are still running their business. These are considered short-term loans.
- Equipment Loans – An equipment loan allows you to sometimes get a loan easier. The equipment purchased with these types of loans is considered collateral. So if you don’t pay the bank back, they will be able to take the equipment in return. Some of these loans may be considered tax write-offs as well.
- Lines of credit – These loans are great for businesses that just need a small amount of money. With these loans, businesses are able to pay back only the amount that they need. You only pay interest in the amount that you actually borrow from the bank. These loans oftentimes offer longer repayment periods, which is helpful for many businesses.
Small Business Startup Loans: Do Your Research
As you can see, there are tons of ways that you can apply for small business startup loans.
It just depends on your current business situation, and whether or not you qualify.
Starting a business is an exciting time, but it is also a huge investment. You want to make sure that you are borrowing an amount you are able to pay back.
Have you recently started a small business? What are some tips you would give to those trying to get small business startup loans? Let us know in the comments.
Small Business Loans Sample Costs
Below are a few examples of prices for Small Business Loans which will give you an idea of how much you will pay for your purchase.
- $150k to $5m average Loan Size
- Prime + 2%-2.75% average Interest Rate range
- Down Payment is generally between 10% to 20%
- 15x to 1.25x typical Debt Service Coverage Ratio
- Hold Back Rate is usually 10% to 20%
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