Congratulations on taking the reins and starting your own business! Did you know that approximately 540,000 people become new business owners every month (according to The Kauffman Index)? It takes tremendous dedication, commitment, and passion to build a company from scratch. Now that you’ve successfully launched your operations, you might be looking to secure the low-cost funds you need to grow.
Challenges for New Business Owners
Even with all the freedom of entrepreneurship, you might come across financial challenges as a young business. A lack of available capital slows down growth for any business. Read more about the common reasons behind business failure.
Low-cost capital might not be as accessible for new businesses as costly alternatives because of lenders’ increased risk. That’s why it’s crucial to do your research before you make any financing decisions. Here are some options for you to explore.
You actually can take out a personal loan to fund a new or early-stage business. A personal loan can help you build good credit – crucial when you apply for a low cost business loan down the line. Personal loans can include a line of credit (like credit cards) or a lump sum with fees and interest that you repay with regular payments.
There are several advantages when you use a personal loan to fund your business. With a personal loan, you’re able to use the funds as you wish. You can apply funds towards working capital, marketing, hiring, equipment or use in other ways to support your business. Personal loans often come with lower APRs than a credit card, saving you money over the long run.
You should be aware of the drawbacks of using a personal loan for your business. First, you won’t get tax credits for your interest payments like you would with a business loan. If your loan is secured, it will be tied to your personal assets. If you default, it’s a possibility that those assets can be seized by the lender. You might also find that personal loan sizes are too small for your needs. Business loans are often for much larger amounts than a personal loan.
Whether it’s a personal credit card or a business credit card, there are benefits to using a card to fund business expenses. First of all, it’s easy. Credit cards are revolving credit. You can borrow up to your limit, pay off and use again. You’ll avoid reapplying each time you need additional funds. Another pro of using a credit card is that you establish credit. Strong credit scores are needed to secure a low-cost business loan as your business grows. For more information, read this post from the SmartBiz Blog: The Pros and Cons of Credit Cards.
Business Term Loans
A business term loan is a lump sum of money paid back through regular payments at a fixed interest rate. Term is the repayment length of time, typically one to five years. Term loans vary. The interest rate, term length and loan size depend on your credit rating and business revenue. Learn more about bank term loans on the SmartBiz Loans website here.
SBA 7(a) Loan
Once you’re up and running and have been in business for at least 2 years, consider looking into a government-backed loan. If you qualify, the Small Business Administration’s low-cost loan programs can be your best option. SBA loans have low rates, long terms and very low payments to fuel stability, growth and savings.
An SBA 7(a) loan can be used for a variety of purposes.
- Working Capital – Purchase equipment, increase inventory, add marketing programs, for operating expenses to hire additional staff.
- Debt Consolidation Loans – Refinance merchant cash advances, short-term business loans, high interest business loans, daily or weekly payment loans or business credit cards.
- Commercial Real Estate – Refinance an existing commercial real estate mortgage, buy an office building or other owner-occupied commercial space.
SBA 7(a) loans are known as the “gold standard” in small business funding. An SBA 7(a) loan has several advantages compared to other options including:
- Low interest rates
- Long terms
- Very low monthly payments
- Available for many uses
- Can help build business credit
- No prepayment penalty
- Available nationwide
For in-depth information about the popular SBA 7(a) loan program, visit the SmartBiz Small Business blog and review our comprehensive article: What is an SBA Loan?
Requirements to apply for an SBA 7(a) loan
Lenders and loan programs have unique eligibility requirements for an SBA loan. For example, some lenders may require a business plan while others do not. (SmartBiz Loans does not require a business plan). Requirements for an SBA loan facilitated by SmartBiz include:
- Time in business must be above 2 years
- Business owner’s personal credit score must be above 650
- The business must be U.S. based and owned by US citizen or Lawful Permanent Resident who is at least 21-years old
- No outstanding tax liens
- No bankruptcies or foreclosures in the past 3 years
- No recent charge-offs or settlements
- Current on government-related loans
How to apply for an SBA 7(a) loan
Step 1: Check your eligibility.
Before you even begin your application, make sure your business is eligible. Visit the SBA website for a list of eligible businesses. You must also meet the requirements listed above.
To determine if your business is SBA loan ready, sign up for SmartBiz Advisor, a free tool that helps you learn how banks typically evaluate your business and recommends ways to increase your likelihood of approval when applying low-cost funding.
Step 2: Review requirements and gather paperwork.
The more organized you are, the swifter the application process will move. For a list of documents required for an SBA loan, visit the SmartBiz Blog. How to Get an SBA Loan: Documents You Need
Step 3: Choose a lender.
Although SmartBiz Loans is not a lender, we work with multiple banks to match you with the lender most likely to fund. You won’t waste time going from bank to bank. This video has step-by-step information about how to get an SBA loan:
When you work with SmartBiz Loan, expert support is available. The SmartBiz Loans team is on hand to help facilitate the process. Our loan consultants can answer any questions that might come up during the loan process. To read 5-star reviews about our customer service, visit Google Reviews, the Consumer Affairs website or the SmartBiz Loans TrustPilot page.
Discover if you’re prequalified for a low-cost SBA loan in minutes without impacting your credit score here.
If you haven’t pulled the trigger yet to launch a business, the SBA is an excellent resource. For example, their Learning Center is full of online courses, articles, and worksheets that can help you every step of the way. As you’re planning, managing, and growing your small business, you’ll find resources on the SBA website.
Visit our blog to learn more useful tips when it comes to running a small business, from financing to employee management to marketing. Discover if you pre-qualify for a low-cost SBA loan on our website.
* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.