How to Get a Business Loan

Traditional Business Loans

Among the different loan options, traditional bank business loans are considered to be one of the most common types of loans available to small and medium enterprises. If you have good credit standing, you wouldn’t be having a hard time securing a traditional loan. The average loan size that you can get depends on your financial requirements and business standing. The average is around $800,000.

What is Traditional Business Loan?

From the name itself, traditional business loans are the loans that are provided by lenders and banks. They offer low interest rates and good terms for commercial lending. Traditional loans are used for different purposes which include: business acquisition, construction, startup, inventory, cash flow, and a whole lot more.

Requirements needed:

When applying for business loans, you need to submit your income statements and balance sheets. You will also be required to submit your business tax returns along with your debt schedule and main operating bank statements.

How about for a traditional bank line of credit? This is a kind of financing where companies are given a certain amount that they can use at any time. Traditional lines of credit are offered by small and big banks, credit unions, and community banks.

To avail line of credit, you are required to submit the following:

  • Financial statement
  • Business tax returns
  • AR and AP aging schedules
  • Debt schedule
  • List of collateral

Online Business Loans

How to Get a Business Loan
How to Get a Business Loan

Another option is to go for an online business loan. There are so many online lenders who provide quick application process, making it a fast and stress-free way for you to secure a loan. There are basically two types of online business loans: short-term and long-term business loans.
For short-term online business loans, the time period is from 3 to 24 months. These loans are used for short-term financial needs like a marketing campaign, general working capital, or purchasing inventory. The long-term online business loans, on the other hand, are loans that have a time period of 1 to 5 years. They are used for long-term projects like big renovations, new location, etc.

Qualifications and Requirements

The requirements needed to get an online business loan actually depends on the lending company. But usually they require the following:

  • Minimum annual revenue ranging from $100,000 to $250,000
  • Minimum personal credit score from 500-600
  • Minimum required time in business is from 1-2 years
  • Industry requirements vary

Online lenders, in general, do not require the documents needed by traditional banks. But it does not hurt that you are prepared with the following documents:

  • Business Tax ID
  • Social Security Number
  • Business Bank Account
  • Financial Statements

Choosing the Most Suitable Type of Loan

Given the different options, how do you get the most suitable type of loan? There are actually several business loan packages offered by online lenders and traditional banks. You need to be able to assess which one is the best choice. It helps that you know where you want to use the money and your business’ financial standing.
First is that you need to know where you want to use the money for. How will this loan help your business grow? Next is select the type of business loan based on your specific needs. Do you need a short-term or a long-term business loan?

How do you choose the lending option for yourself?
This varies depending on different factors. You can actually go for traditional bank business loans if you can provide collateral. You have good credit standing and don’t need instant cash. Secured business loans offer the best rates and terms.
For smaller businesses, getting a traditional loan may be a bit more difficult, considering that banks factor in cash reserves and sales volume. Many may turn to the other lending options.

When do you use online lenders?
For business owners who don’t want to undergo the strict requirement and application process of traditional banks, they opt for online lenders. You can use online lenders when you lack collateral. If you need quick cash, this is also the best way to go. They are able to give you loans ranging from $500 to $500,000.

Online lenders also give lines of credit. In terms of APR, it ranges from $7 to 105%. This may vary depending on the lender and the kind of loan you want to get. Other factors that can affect the average APR include the length of term, credit history of borrower and collateral. Although banks have good terms and rates, there are online lending companies that can also compete with banks when it comes to APR being offered.

Advantages of Online Business Loans

This is where online business loans have the advantages. Banks may offer the best rates and terms. But when it comes to the application process, they are the strictest. Why do some people prefer to go for online business loans? Here are just some of the known advantages:

  • They are not as strict as traditional banks when it comes to requirements. Yes, they still require you to submit documents. But you don’t have to submit a lot of requirements that most banks will require.
  • The application process is quite fast. Since they use technology for the application process, it will not take several days before you get your loan application approved.
  • In terms of approval, you are almost guaranteed to have your loan approved as long as you submit the required documents. This is very much different from traditional banks and lenders since they will really assess the financial standing of the business.

Business loans are very essential to business owners. Whether you need one to start a business or to jack up capital, loans are created to help entrepreneurs and companies in their business ventures. Depending on what you need, you should be able to find the most suitable type of lending option that you can use for your business.

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