Have you ever had an idea for a business but don’t know where to get the funds to start? Banks and other financial institutions offer small business loans so that you have the capital to begin working toward achieving your goals.
If you’re planning to sell products or provide services to customers, it’s better to take out a small business loan than getting a personal loan for your capital. Lots of lenders, such as Kabbage, are willing to work with startup companies by providing money for their venture. Read this review of Kabbage for more details.
That said, here are the benefits of getting a small business loan for your startup company:
1. Low Interest Rates
The primary advantage of this type of loan is that they have the lowest interest rates among other bank products. The structure is ideal for startups because you won’t have to worry about losing money on interest in the long run.
The rate for small business loans still depends on your credit rating. You have to maintain a high credit score so that you can enjoy the best financial arrangement with the bank.
It’s also influenced by other factors, such as:
Company Age – The time you’ve been in business is one aspect that most banks and lenders think about regarding your loan application. You get more loan options if you’ve been operating for a considerable amount of time.
Monthly Revenue – Your company is deemed as a startup if it isn’t two years old yet. While company age is one factor that lenders consider, enterprises that have been operating for a few months can still get a small business loan. You can do this by proving that your monthly revenue can support the repayment of the borrowed money.
Collateral – You can also provide insurance for the bank as a guarantee that you’ll pay back your loan. Otherwise, the lender has the legal right to take away the security that you’ve given them. Collateral can be deposits, home equity, or your equipment.
2. Long Repayment Terms
Aside from the low interest rates of small business loans, you’ll also enjoy long repayment terms. This setup allows you to increase the principal amount that you borrowed enough to have the money for paying it back as well as enjoying your profit.
Most small business loans for real estate have a monthly repayment scheme of 25 years, while you can pay the lender back up to 10 years for equipment. Borrowing for working capital has a shorter loan period of seven years.
3. Small Down Payment
There are times when you need to give a down payment for your small business loan. Fortunately, for this setup, you won’t have to pay a considerable amount. It’s influenced by how much you’re borrowing, the purpose of the money, and your credit score.
4. Flexible Use
One of the best things about small business loans is that you can use them for any company-related expense. Some types of loans have requirements or limitations as to how and where you should spend the money that you borrowed.
Of course, you still have to submit a detailed plan to banks and other lenders for your loan application. However, this arrangement provides enough leeway in case a more urgent expenditure comes up.
The SBA 7(a) loan, which is a program developed by the government, offers funds that you can use for anything business-related, such as:
Refinancing Current Debts – You can use the money you borrowed to give yourself more time to finish paying off your debts through refinancing.
Buying Real Estate – You also have the option to expand operations and purchase land for your headquarters or offices.
Purchasing Inventory – The funds from the loan allows you to stock up on products, especially when you’re seeing an increase in orders but cannot accommodate the demand yet with your own money.
Acquiring Equipment – Scaling your business entails buying equipment to increase your output. A loan enables you to boost your manufacturing capabilities.
5. Owner Protection
Another benefit of getting a small business loan is that it’s lent to a corporate entity. This means that, if you’re in a corporation, you aren’t solely responsible for paying back the debt in case the venture doesn’t work out and the company files for bankruptcy.
A small business loan can provide you with the funds to continue or expand your operations. You get to enjoy lower interest rates, longer repayment terms, and a smaller down payment compared to other bank products.
You can also use the money for different uses. Plus, the loan offers protection from bankruptcy since the arrangement is between the lender and the company.