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A small guide to applying for a small business loan


When it comes to debt-based financing, there are basically two kinds of credit and loans out there. Personal loans and credit cards, and then business loans and credit financing. For consumers, applying for loans or credit is pretty simple usually not involving much more than a credit check and income verification. Business loans can involve that, but they can involve more than that depending on what you’re looking for. Here is a brief guide to understanding business loans for startup entrepreneurs.

1. Types Of Business Loans

Some business loans are secured, which means assets you have will be used as collateral, while others are unsecured and usually depend more on the borrower’s business or personal credit. Some business loans are designated for specific business purchases while others can be used for a variety of costs.

-Asset-based Loans

These loans generally are used to purchase equipment for a business. They’re secured either by the assets to be purchased, or by more liquid assets the borrower already has.

-Micro Loans

These are loans that are usually issued in smaller amounts, and they’re usually intended to help startups that may not qualify for a larger bank loan like an SBA loan. These kinds of loans are often found with online lenders that are either peer-to-peer lenders or otherwise privately financed. According to the experts at Lantern Credit, “Microloans cannot be used to pay off existing debt or buy real estate.”

-Merchant Cash Advances

A merchant cash advance isn’t quite a loan as it’s not quite financed the same. But it is a form of financing that can work if you have steady credit card sales and can find an MCA lender with favorable terms.

2. Applying For Business Loans And Credit

It might take a little while to find the exact business loan you want, but if you know how much you want to borrow and know which kind would be right for your business, it’s much easier to compare small business loans. Some business loans take a while to qualify for and get approved for, but some can be approved even if you haven’t been in business that long. But you should definitely get a business checking account before you apply for a business loan, and it’s advisable to have your financial documents in order as well. You’ll want to make sure your personal FICO score is at a number somewhere between 650 and 850 because it is important for getting the lowest interest rates possible.

3. Paying Your Business Loan Off

The most important step when using a small business loan is making sure it’s paid off on schedule, and you should make sure you’ve gotten the maximum ROI in how you’ve spent the funds from it. But you also need to have a plan for exiting and paying it off in the event you’re unable to make your business succeed. If you feel you need to make smaller monthly payments to save money, you might want to look at refinancing the loan if possible.

Basically, you can get a business loan that matches your business size and specific operations even just by getting online and filling out an application form. Just make sure you understand all small print items and get to know all the fine points of qualifying.


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