A Basic Guide to Choosing a Small Business Loan

A small business loan is essentially a way of financing your business when you would otherwise be unable to. By taking one of these small business start-up loans out from a bank or other financial institution, and then applying for aid from the Small Business Administration (SBA), you can greatly improve your chances of developing a long-lasting company. There are a wide variety of small business loans available, among them being small business loans for women, veteran’s small business loans, and specialized government small business loans.

When a loan is taken out that is SBA approved, this means that should you default on your payments, the SBA will repay a certain portion of the loan for you. By acquiring such a loan, you infuse your company with an influx of much needed cash while also mitigating the potential risk of forming an unsuccessful small business in today’s economy.

When preparing for a loan interview, it’s a good idea to compile a checklist of information to have readily available, as well as answers to commonly asked questions from money lenders.

How to Find the Best Small Business Loans

How to get a small business loan may seem like a difficult proposition, but in reality it’s not too difficult with the right information. In order to apply for small business loans, there are a few things you must consider: what type of special loans you’re looking to take advantage of (for instance, if you’re a veteran or a woman), the assets your company will be able to supply up-front, why the loan is needed in the first place (will the money go to hiring more workers or to combating pollution?), and what state you’re looking for aid in.

Once you’ve compiled a list of these answers, finding the best small business loan available is as simple as inputting these answers into the SBA supplied checklist and then conducting a search of the loans you qualify for. You can find the SBA’s loan and grant search tool here.

How to Compare Small Business Loan Terms and Conditions

When looking at loans for small businesses, remember to consider the small business loan rates before jumping into a deal. The value of using a small business loan calculator cannot be overstated when attempting to discover the best deal for the amount of finance you’ll receive, as there are many questionable offers out there that make huge profits through the use of clever wording and deceptive interest rates on loans. Don’t fall victim to these traps and be sure to read through everything as carefully as possible.

While there is the basic 7(a) type of loan that is most commonly supported by the SBA, there are also many other types of loans that are equally available if you meet their prerequisites. For those that have worked in the service of this country, Veteran’s Administration loans, otherwise known as VA small business loans, can be an excellent way of getting a company off the ground. These involve the Patriot Express Pilot Loan Initiative for retired servicemen and the Military Reservist Economic Injury Disaster Loan: a special type of loan for small businesses that would have been able to pay costs themselves had one of their workers not be called up to active duty.

Similar to the military disaster loan, there are also loans the SBA supports to help small businesses that have been negatively affected by problems outside of their control, such as hurricanes or earthquakes. These Economic Injury and Disaster Assistance loans are worth considering if you find your company qualifies for them. The SBA also has support for specific loans of large amounts for companies that act as exporters or lenders themselves. Finally, there are special purpose loans that can be used to acquire funding for specific problems, such as the Pollution Control loan. For an in-depth look at each of these loans, as well as a host of others, click here.

How to Find Low-Rate Small Business Loans

The SBA has a great, comprehensive list of supported SBA small business loans. After perusing their list, keep in mind your company’s projected abilities to repay loans, as well as the realistic expectations of being able to acquire such a loan. The SBA list of supported loan types can be found here. While there might be other financial institutions that offer loan programs for small businesses, it’s a good idea to stick within the realm of SBA supported ones to assure your company won’t find itself in deeper trouble in the future.

What are the Important Factors in Choosing a Small Business Loan?

Before pushing forward with a loan, it’s important to take a step back and look over your company’s finances as they are. The ratio of money you’ve poured into the company versus the amount of you’ve already taken as loans is heavily considered by investors. Known as the debt to equity ratio, this number (if swinging poorly in one direction) can be the limiting factor in the number of options available to you. Still, even if this number is working against you, there are still ways to make the most out of the situation.

When your company has more debt (money loaned) than equity (money invested), it’s a good idea to look into equity financing. This will provide an influx of cash that will increase the amount of capital you control as the owner. Equity financing essentially involves small business administration loans and is something worth looking into as a start-up because it provides advantages that debt financing cannot. Equity financing is about drawing up funds that won’t add further debt penalties to the company and are often less stringent about when they’re required to be paid back.

If equity financing does not seem like a viable option, and your company has just recently been established, then the SBA supported micro-loan program might be the right one for you. These loans are relatively small, in the amount of fifty thousand dollars, but are dedicated to supporting newly established or recently expanding small businesses.