Popular Types of Business Loans for Small Businesses



Every business encounters major challenges in the cash flow at some point, which may necessitate borrowing of funds in order to sustain business operations. For startups, financial difficulties may come knocking at the door early on.

Fortunately, small businesses that find it difficult to finance all their projects have a number of avenues to turn to for support. Finding a lender is not as tedious as it used to be, and the choices are more numerous today. There are bank loans and merchant service providers. Some loan packages are offered by government agencies, which attract many borrowers since they come with guarantees other lenders cannot provide. Loans come in all forms and sizes, and some are tailor-fit to meet the specific needs of the lender. The availability of more than one option is an indicator that business owners must evaluate their needs first in order to ascertain that a specific type of loan is indeed the best recourse given their current situation.

Short-term Vs. Long-term

Two basic types of loans available to small business owners are long-term loans and short-term loans. Long-established commercial lenders usually offer long-term loans that have low interest rates. The amount of money is large enough to cover huge expense, such as additional capital needed in business acquisition and related activities. Small businesses looking for working capital can approach these lenders, and they usually get approval if they have a formidable business plan.

Meanwhile, short-term loans are usually issued by credit unions and banking institutions. Whereas a long-term loan must be paid on a monthly basis, short-term loans are paid at the end of the term of the agreement. The interest rate is usually higher compared to short-term loans. Retailer looking for additional funding for a short project that is expected to provide huge profits in a brief time period can benefit much from this type of loan.

Alternative options

Aside from conventional sources of funding, borrowers may opt to avail of alternative lending offers, such as those offered by online merchants. Applying for a business loan is now quite convenient since every step of the process can be conducted online. These offers are also quicker to process. It is possible to access capital without the difficulty posed by traditional procedures requiring mounds of paperwork. Alternative financing options work best for use in meeting the needs of an expansion, or sustaining operations when there are cash shortfalls.

Small businesses that are in the early stages of operation often find it difficult to meet stringent requirements. Alternative lending methods are relatively more flexible, including cash advances, crowd funding, and peer-to-peer loans, among others. For small businesses, it is often easier and faster to secure financing using alternative means. Many business owners opt for alternative financing methods especially when they have urgent need for the money. There are situations where the time frame is critical because availability of funds determine whether the company's daily operations can continue or not.

It is not that difficult even for startups to get approval for a loan if they have a good credit score and a positive cash flow as well.

Are You Ready to Start Your Own Small Business?

Some Helpful Tips to Help You Launch Your Business

Regardless of where you are in your life - a recent college graduate, someone looking to start a new career path, or a retiree looking to live his or her dream - now is a great time to start a small business. Why you ask? The turnaround of the economy, the availability of capital, and the number of organizations that support small business owners are all great resources that entrepreneurs can use to launch their dream. Here are some tips you can also use to get your small business of the ground and running.

Important Information on Small Businesses

According to studies done by Dun & Bradstreet, companies that have fewer than 20 employees stand less than a 40 percent chance of surviving past four years and only a nine percent of making it past 10 years. Additionally, restaurants only stand a 20 percent chance of surviving past the second year. The surprising aspect of these statistics is that only 10 percent of businesses that do close do so involuntarily because of factors such as bankruptcy - the other 90 percent close because of factors such as a lack of success, lack of bringing in desired income, or the owner realizing how much work is involved in running a small business.

The Four "M"s of Business

Model

As a business owner, it is important that you own a business that is a good fit for you. When thinking about the business model you want to purse, ask yourself these important questions:
  • Do I have a personal interest or hobby that could be converted into a business?
  • Do I personally believe in the service or product I am interested in selling?
  • What or who do I care about the most?
Answering these questions will help you to narrow down and decide which business model will work best for you.

Money

Small businesses are very diverse in needs and the finances needed vary greatly from one to the next. But, regardless of what type or size of business you open, it is necessary to raise capital, manage that money, and budget costs. In most cases, start-up funds for the business come from the entrepreneur's personal savings and possibly in combination with bank loans. Studies vary on how much money a new business needs to get started - experts give answers ranging from $10,000 to $80,000.

Management

Although there are millions of businesses out there that operate with a sole proprietor, in order to help the business grow, chances are you will need to hire employees. Even though you may believe you are an expert in all aspects of your business, there are likely other professionals out there who can handle marketing, sales, and finances better than you can. Bringing these professionals into the fold can help to elevate your business to the next level and help to streamline and improve its growth overall.

Marketing

Marketing is a very important part of a new small business. Unless you were able to land a great store front location with a lot of traffic, you will need to let consumers know that your business exists. Marketing can be very overwhelming, so make sure you are focusing your efforts on a niche market and specific type of target consumer who is most likely to purchase your products. Consider using social media and other unique platforms to help get your message into the market and draw consumers in.

Cash, Credit, Or Contracts

Can you build a solid argument to pick one over the other, probably not? Cash, credit, contracts which is better? All are great for money management. Many will argue cash is the best because it is easy to handle.

First on the list is money. We all love cash right? Who doesn't want to feel like a high roller. Can you really sit on a fat credit uncomfortable? How many spine alignments has fat cash ruined, huh? Well, I'm writing this article so I'm exempt. Anyways cash has benefits except it is not exempt from inflation. The money theory one dollar today isn't one dollar two decades from now. Can imagine all your savings lost to inflation? We have to think money rules right? Yeah, for a little encouragement it's a good idea to invest your money in a business or house.

Credit is by far the hardest one to manage among the three you think you are doing the right thing by making payments right? There are too many factors which affects your credit. Sometimes the smallest installments cause many to think well its easy. Credit is as mundane as the section of this article. You fix and then you have to maintain it. Cash does not have to be maintained you keep cash worry free and make it worry free. You really do not have to pay taxes on money Uncle Sam has no idea you made right?

Contracts are simple once the guidelines have been established. When you make contracts make sure you make the most of your contract. When you are on a starter contract try not to overproduce. When you make a contract make sure you know how to void your contract. Contracts are the best way to do things in life. Can you make a deal life without a contract? Out of all the things mentioned contracts are the best, but cash and credit are just as good. Contracts work out the best for employers because it stays on the books fixed including incentives.

In conclusion there are many ways you pick, but unfortunately you can only focus one if you want to keep your sanity. There are many people who will pick cash because it's easy, but contracts are the better choice. Do you really think you can approach the bank asking for $20 million dollar loan? You decide what's best for you. There is no wrong answer when handling money mismanagement is mismanagement.

Best Investment Strategies - Strategies That Will Yield the Most Benefit for You

Is there a foolproof strategic formula for investing for the future? Of course not. Although most investors find a common ground and consistently play strategies which have been favorable in the past. I like parables! A good friend and his father decided to convert their wheat farming operation to a cattle grazing operating business, all the wheat went to pasture, yearlings were bought, to retain and fatten to sell to a "finisher", feed lot, to bring them to slaughter. The holes in this procedure are glaring, no control of the cost of yearlings, food cost, weather, daily gain, timing to hit the right time to sell. In short to many variables. Grandpa, having tried this before, stated it was going to be very difficult! As luck would have it all factors came to pass, the cattle were sold, and a great windfall of profit was gained. Grandpa said, " Boys, you better take your profit and enjoy it, because you will never do it again!" Of course fueled by the heady breeze up there, they doubled down... for many years, and many times. Never regained that level of profit, in fact lost enough that land liquidation to reduce debt was necessary to survive. The moral is of course, be careful for what you wish for. First attempt or early phenomenal gain might delude us to believe it is routine rather than the aberration which it was. Convince us to try high flyer stocks, or the new flavor of the month, to attempt to repeat those heady days! If we are lucky, we will have some winners, which will offset the many losers. I did some research and found out that the best "blue sky" hedge funds, return around 3% to the investor annually. The current stock market with its high share value, by knowing the Newton theory, that all action is met by equal reaction, we may be on a collision course. In history, a reaction to plus gains, might mean loss of equity value, for some time, meaning we stood in space without earnings for that time frame. Will these stock over time regain vitality? I do believe so, but you need to have that time frame to overcome the immediate foreseeable crisis.

My theory is not to discourage you or dissuade you from taking "high flyer" risks. I would however, concern my self with where you are currently in life. This includes both earnings, age, outside obligations which place immediate or contingent demands on cash flow. In the investment capital, I would guesstimate percentages for the risky "high flyers", and percentages for staid investments, depending on your lifestyle evaluation. I like private investment, for stable, reliable investments, but I don't think either should be all you invest in. Private debt based business loans, will get you a better rate, than C.D.'s, treasury securities or swap rate investment, in the 3.50% to 4.25%, amortization of 1-10 years. Private debt equity is not guaranteed, however, the loan equity value usually in the neighborhood of 50%-70% loan to value, is quite a bit of security to the first mortgage investor. Safeguards include the cash flow requirement, most private lenders will require cash flow of 2.50 percent of debt coverage, in the property, annually. Will insist on creditor debt limits, bankruptcy remote safeguards, and a solid exit strategy. Some are monthly income, allowing interest repayment immediately for living expenses or other investments. Though I would not encourage any investor with eyes wide open, not to take any risk, After all, it's the spice of life. It should matter to a lot of investors to have a dependable base of investment, to rely on, while waiting for the "flyers". As a banker we had another parable, "The borrower who owes the bank, a hundred thousand and can't pay, this borrower has a problem! The borrower who owes the bank one million dollars, and can't pay, well the bank(er) has the problem!" Don't break the bank! With private investment, smaller investment amounts some as low as $5000.00 can allow for diversity, and personal hedge in your portfolio.
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