In a perfect world, you would never have to borrow money for your business. Whether you wanted to expand into a new location, hire additional workers, invest resources in developing new products or services, buy more inventory, or acquire new equipment or machinery, the money you needed would always be resting comfortably in your business’s bank account.
Unfortunately, as any small business owner will tell you, it’s never that easy. No matter the industry, businesses may encounter difficulty in securing the money they need to grow their operations. For that reason, it comes as no surprise that over the last five years, 53 percent of small businesses have been forced to look to outside sources for funding to overcome cash shortages.
Is your business facing a cash gap? If so, you may find yourself looking to take out simple business loan. Here are five things to keep in mind before beginning the process of securing financing:
You have many options to choose from
Years ago, when a business owner wanted to get a loan, he or she would stroll into the nearest bank, fill out a bunch of paperwork, and hope the application was approved.
In the aftermath of the 2007-2008 financial crisis, however, traditional banking institutions are approving fewer loans to small businesses. Because of that, a number of alternative financial vehicles have emerged to help business owners get the money they need to grow their companies. In addition to regular bank loans, business owners can also find financing through loans from non-bank lenders, business lines of credit, merchant cash advances, and invoice factoring companies, among other financiers.
Some lenders care about your credit score while others don’t
If you want to get a loan from a bank, you will need a near-perfect credit score.
Following the financial collapse, banks are extremely picky about funding small businesses. In fact, big banks approved only 23 percent of small business loan applications in March 2016. Because these traditional financial institutions are approving fewer than one out of every four applications that cross their desks, you have to believe they are only signing off on businesses that have impeccable credit scores and amazing financials.
But just because you and your business might have a less-than-optimal credit score doesn’t mean you’re completely out of luck. Non-bank lenders, for example, care much more about a business’s ability to generate revenue than they do about its credit score. So long as you can demonstrate you have a positive cash flow and have been in business for more than a year, non-bank lenders will likely be willing to fund your company.
How long are you willing to wait to secure financing?
When most business owners need outside financing, they can’t exactly afford to wait months before money finally starts trickling in.
If you need money for your business quickly, you should probably skip trying to secure financing from a traditional bank. With that route, even in the unlikely chance your application is approved, it can take as long as two months before your business is funded.
Non-bank lenders, on the other hand, can finance your company quickly—sometimes within 24 hours. What’s more, the application process takes 15 minutes to complete. If you’re looking to fund your business and don’t have time to spare, a loan from a non-bank lender may be just what the doctor ordered.
Banks typically require lenders to put up collateral
Banks usually ask borrowers to put up collateral (e.g., property or equipment) in order to secure financing. This way, they are able to recoup their costs in the event a lender defaults on their loan.
When you secure financing from a non-bank lender, you won’t have to put up any collateral. Therefore, in the event you are unable to repay your loan on time, you won’t have to worry about losing any of your property. For this reason, loans from non-bank lenders generally carry slightly higher interest rates.
How much cash do you need?
Once you’ve figured out you need a loan, you must pinpoint exactly how much money your business requires.
In order to realize the highest returns while minimizing their risks, traditional banking institutions generally like to lend large amounts of money to large companies. Of course, they will still fund some small businesses. But according to the Small Business Administration, the median bank loan approved for small businesses is somewhere in the neighborhood of $130,000–$140,000. So if you need more than that, you’ll have to look elsewhere.
Good news: Non-bank lenders are known to approve small business loans as high as $1 million. Curious as to whether your company will qualify? Apply for a loan today and get an answer quickly.
Stop letting cash shortages prevent your business from getting to where it needs to be. With a loan from a non-bank lender in your bank account, you can take your business to the next level. Good luck!