A small business loan can unlock the potential of your venture and give you a competitive edge in your niche. This kind of funding helps you keep your business running by overcoming the typical cash flow hiccups experienced by small businesses.

If you are running a small business, the ongoing Covid-19 crisis is most likely affecting your operations. The pandemic threatens the future of small businesses in the country because of poor growth, lack of credit, among other challenges.

In this volatile business environment, the top question on your mind is most likely, “where can I get a loan easily?” This post seeks to answer this question through an in-depth look at small business financing processes, secured and unsecured loans options available, eligibility and other factors that can help you get the all-important business credit.

What Kind of Financing do you Need?

Before you apply for any business loan, you need to assess your financing needs. The critical role played by SMEs has seen an avalanche of credit products targeting these businesses.

Small businesses account for over 90 percent of all businesses in the country, and the financial market continues innovating products targeting this large sector. To make the right choice when planning for financing, ask yourself ‘why’ you need this cash boost.

Small business financing can serve many purposes, including:

  • Startup capital
  • Working capital to run operations
  • Cover cash flow deficiencies
  • Cash to cater for emergencies such as Covid-19
  • Money to buy another business
  • Funding to expand your business
  • Refinancing debt

When you have a clear objective, it’s easier to prepare your loan application and you can answer questions your lender poses. These questions include:

  • How much financing do you need? (Consider all the expenses you want to sort and have a comprehensive list before going to the lender)
  • Is your business performing well? If so, why do you need external financing?
  • Is your credit profile good?
  • Do you have any collateral?
  • How will you utilize the funds?
  • What’s your loan repayment plan?

The Difference between Banks and Marketplace Lenders

For a long time, banks were the only source of business funding, but this has changed over the last few decades. In that time, the financial industry’s growth has led to more flexible borrowing options. This is a key consideration when you want to know how to get a business loan. Here’s a brief overview of banks and online marketplace lenders.

Banks

Traditional banks still remain a key cog of the financial system, and many large businesses rely on them for funding. They offer a variety of lending options, including commercial real estate loans, term loans, lines of credit (LOCs) and refinancing.

Some banks also partner with the Small Business Association (SBA) to provide small businesses with lower interest micro-loans, financing under the (a) loan program, disaster loans, and others. However, many small enterprises have a hard time getting approval for bank loans because of lack of collateral, low sales volumes, lack of assets, bad personal or business credit profile, among other reasons.

Some of the pros of using traditional banks include:

  • Interest is tax-deductible
  • Best for established businesses with assets
  • Some drawbacks of small business bank loans include:
  • Stringent qualifications/eligibility
  • Collateral requirement
  • No startup loans
  • Lack of flexibility in financing
  • Higher rates for small businesses as they’re categorized as high risk
  • No financing for poor credit businesses

Marketplace Lenders

Online marketplaces have emerged as an alternative for small businesses looking for easy, quick, and flexible funding. Lending marketplaces connect you with the best funding for your unique business needs from private lenders. You get tailored financing based on your credit profile and cash needs.

Some advantages of marketplace lenders include:

  • High acceptance rate
  • Tailored business financing
  • Funding for businesses with no collateral
  • Quick turnaround for financing
  • Here are some drawbacks with marketplace lenders:
  • Higher rates
  • Not as much information about the lenders
  • Lack of strong client relationships compared to traditional lenders such as banks

What Type of Loans or Financing is Available?

In the fast-evolving business loans market, you have different options to choose from to keep your venture going. Here are some of these options:

SBA Loan - This is financing made by lenders but guaranteed by the SBA with amounts ranging from $50,000 to $5 million. They feature favorable terms, including low-interest rates and longer repayment periods. However, they take longer to process, often between two to three months.

Traditional Bank Loan - This type of small business loan requires a good credit score and it best for an established business. However, if you have collateral, the rates are low and the repayment period can range from 1 year to 25 years. The amount also depends on your company’s ability and needs.

Microloan - These are low amounts advanced for younger businesses that haven’t yet build a good credit profile. Loan amounts go up to $50,000 and rates are comparable to those offered for credit cards. During the slowdown precipitated by the coronavirus pandemic, a microloan can help your business survive.

Business Credit Card - This is a financing tool that can help your business access quick cash for operations. Your business credit is a major factor to qualify for this credit card, but if you do, this is a smart solution for short-term funding. The processing also takes a shorter time (decisions within three weeks).

Tips to Choose Between Banks and Marketplace Lenders

With this insight on the available small business credit facilities, it’s time to choose the right lender. You have the option of a direct lender (banks, online lenders, investors or credit unions) or a marketplace lender.

Here are some ways to determine whether to borrow from your bank or a marketplace lender:

  • State of your credit: With good credit (over 680 FICO), you can borrow easily from a direct lender.
  • Ability to repay: If you can’t repay the money right away, a custom repayment package from the lending marketplace is the best financing option.
  • Your unique cash needs: Do you need quick access to cash or continuous line of credit?
  • Do you have a good relationship with any direct lender? If not, go to the lending marketplace for quick financing.
  • Do you have collateral? If your business has assets that you’re willing to put up as collateral, your bank can give you small business loan rates.

These considerations help you determine which lending option is more flexible and accessible. Traditional lenders have tough conditions that make it impossible for small businesses to access credit. Using your assets as collateral is not also a good decision for a young business. This makes marketplace lenders a more viable financing option.

How to Apply For a Small Business Loan

Every lender has unique requirements for their business loans. Here are the application processes for direct lenders and marketplace lender:

Applying for a bank loan

  • Qualifications include personal credit scores of more than 680-700, over one year in business, good revenues, and cash flow.
  • Determine the type of loan: This can be a term loan, line of credit (LOC), commercial real estate loan, or micro loan.
  • Collate your documentation: Crucial documents include Driver’s license or ID, personal a business tax returns, bank statements, financial statements, business plan, legal business documents (Articles of incorporation, lease agreements, etc.), proof of collateral credit report.
  • Compare the financing options and choose the one that best fits your business needs

Applying for a loan from a marketplace lender

  • Check your credit score
  • Gather the same business documents required for a bank loan
  • Consider the loan options available (SBA loans, micro loans, online business loans, line of credit, term loans, business credit cards, and others)
  • Use the best lending marketplace to find the best terms
  • Apply for your loan online on the marketplace
  • Compare several quotes from different lenders and read carefully through the terms.

Summary

Applying for a small business loan can be a challenging process. This is because many small businesses grapple with poor credit, lack of collateral, low income, high debt, and insufficient capital investment. All of these factors make it hard to access cheap financing quickly.

Luckily, the financial market now offers more options beyond those offered by traditional lenders. You can now get quick, flexible and affordable funding for your business from the lending marketplace.

If you’re wondering how to get a business loan, Rapid Finance has the right solution for you. Find the most comprehensive list of small business financing options in one place. Call 866-219-9971 today for a business loan quote tailored to fit your business needs.