Most small businesses need financial help when they enter new stages of growth. Whether your business is developing a new product, opening a new location, or just setting up an online storefront, chances are that you need some extra cash to make ends meet.
Business loans can make growth more affordable, but it is important to choose reliable sources that will give you fair terms and interest rates. You want to get a loan, but you don’t want to spend more money than necessary repaying it.
Before you start filling out small business loan applications, consider whether these three reliable sources could meet your funding needs.
Your Bank or Credit Union
Banks offer a lot of benefits that make them reliable sources for small business loans. Most banks will only lend money to small businesses with good credit ratings and strong business plans. That may sound like a hassle, but it’s often beneficial to have an expert review your plan to make sure you’re set up for success.
Your bank or credit union may also give you lower interest rates and longer repayment terms because you already have a relationship. If you or your business have been using the institution for several years, then the loan officer can look at your records to decide whether you’re a risk. This personal relationship can make a big difference when it comes to getting your loan application approved. Some banks will even give slight discounts to businesses that have checking and savings accounts with them.
Just because your bank or credit union is a reliable resource doesn’t mean that you should ignore other financial institutions. Talk to at least a dozen banks before accepting any offers. Lenders base making their decisions on several factors. You might find a lender willing to give you a lower interest rate or ask for a smaller down payment.
The Small Business Association
The Small Business Association does not lend money directly to businesses. A lot of people mistakenly think that their businesses can borrow directly from the federal government.
An SBA loan, however, does not actually come from the Small Business Administration. It comes from a bank, but the SBA helps you get favorable terms by guaranteeing the loan. If your business fails to repay, then the government will step in and take over for you.
Still, there are big differences between SBA loans and standard small business loans. SBA-guaranteed loans, for instance, usually have:
Lower interest rates
Smaller deposit requirements
Longer repayment terms
The SBA offers several types of business loans, such as:
Microloans
Real estate loans
General small business loans (the SBA calls this the 7(a) Loan Program)
Disaster loans
Learn more about your options before approaching a bank for approval. The type of loan that you apply for could affect whether your application gets approved.
Third-Party Lenders
Third-party lenders can include organizations or entrepreneurs willing to invest in your small business. Many of them are reliable sources of money, but you will want to research each one to make sure you choose one that’s right for you.
Some small businesses turn to crowdfunding. Crowdfunding started as a way for startups to get the money they need to open their businesses. Today, established businesses also use crowdfunding sites to fund growth. These sites are typically reliable and trustworthy. Again, you should do your research to make sure you choose a trustworthy option that matches your business’s needs.
Third-party lenders could also include entrepreneurs and investment companies. Some may lend your business money just to profit from interest payments. Others may want to purchase shares of your business in exchange for funding.
Small business owners have plenty of opportunities to borrow money. It’s important to focus on reliable funding sources that follow ethical business practices. Doing so should help you access the money you need without creating financial problems that will hurt you in the future.