The small business loan is a valuable financial tool that can be used by new and existing businesses to fund a variety of different operations and purchases. If you are planning a start-up, or you currently need revenue to pay for expenses or marketing costs, it is important to learn about small business loans. Read on to find out how you can qualify got one, what you can use the funds for, and what lenders and institutions offer these specialized commercial loans to small business owners.
Who Can Qualify for a Small Business Loan?
Money is your lifeline when you are trying to start or grow a business, and securing financing can be the difference between success or closing your doors for good. It is important to know the criteria for securing a loan and what will make you eligible or ineligible, according to the Small Business Administration. Not everyone can apply for a small business loan. Here are some of the qualifications you need to meet before you can fill out an application:
- Loan must be used for business purposes
- The business must meet size requirements
- The business must be in an appropriate industry
- You must have an appropriate level of experience
- Must have a good personal and business credit score
- Ability to repay the principal and interest of the loan
- Collateral to secure the loan
What Can Loan Disbursements Be Used For?
When you apply for a loan, the lender will want to know how you intend on using the money. How the loan will be used will be considered when the loan is being underwritten. You may be denied if you intend to use the loan proceeds for purposes that are specifically restricted. Here is a list of the restrictions that are present with most lenders who lend through the Small Business Association:
- To reimburse someone who put money into the business previously
- To buy an asset that will increase in value over time
- To lend to customers
- To refinance debt that is already under contract
There are a lot of ways that proceeds can be used. Here are some of the basic uses:
- To provide the business with capital that is used for operational costs or to purchase inventory
- Short-term financing for construction or for seasonal financing
- To buy equipment or furniture
- To buy real estate or land
- To renovate a building
- What Lenders Offer Small Business Loans?
You will need to review the specific restrictions for the use of loan proceeds before you apply. You will also need to compare the loan products and programs that are in place for small business owners. There are a long list of private lenders that are part of the Small Business Association. You can locate these lenders by visiting the search link and selecting your state. Be sure to compare rates and terms before applying to a specific SBA lender.
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It is very important to be prepared when you are filling out a loan application. You will need to know about personal credit score and business credit history to ensure that everything is accurate. You will also need proof of industry experience, resumes, income tax returns, financial statements, bank statements, legal documents, collateral, and a detailed business plan to complete your application. Once you do, you can apply for your small business loan and start using the proceeds according to your plan.
