Are You Getting the Best Loan Conditions Possible for Your Business?

Are You Getting the Best Loan Conditions Possible for Your Business?

Small Business Loan Options

There isn’t a single loan that is ideal for every business when it comes to business loans. Because each business varies in size and industry, your business loan needs to be generous enough to help your business achieve a specific goal but manageable enough so that your business can pay it off. Here are some tips to help you cover all the options to find the best loan to meet your business needs. 

Are You Shopping Around? 

Unfortunately, over 80% of small business loan applications to traditional banking institutions are denied. Compared to mortgage, auto, or large business lending, small business loans are a riskier investment for banks. Any small business loan applications that are approved will most likely have higher interest to offset the risk and the smaller, or even lack of, collateral to back up the loan.

If you have been rejected by your bank for a small business loan, there are other non-traditional options to finance your operation. Banking institutions are not the only type of institution capable of loaning out money. The Business Model Institute says non-traditional financing options such as credit unions and community investment funds are available to assist local businesses in their community.

Here are several more non-traditional options to obtain business financing

  •   Local Credit Unions
  •   Community Investment Funds
  •   Federal and State Government-Backed Small Business Loans
  •   Private Entrepreneurs
  •   Asset/Collateral Based Financing
  •   Factoring
  •   Credit Cards
  •   Merchant Cash Advances

Are You Leveraging Your Assets? 

If you already have an established business and are looking to expand the size of your business or to develop new product lines, you may find that you need a loan to cover the acquisition of new assets. Small businesses normally do not have enough cash on hand to fund large business expansions.

If you are looking into financing your expansion by leveraging your assets, many other factors can come into play such as your current amount of leveraged assets, company size, income, and age of business. Your line of credit is usually determined by how much more debt your business can take on.

As Ariste Reno from explains, certain qualitative and environmental factors will allow you to qualify for more money or a lower interest rate even under the new CECL model

How to Measure Leverage

Accountants and investment analysts measure leverage using a financial tool called the debt-to-equity ratio.

The debt-equity ratio measures the amount of debt a business has compared to the equity of the owners. The debt-equity ratio is shown on the business balance sheet.

To figure the debt-equity ratio, start with “liabilities,” and include short-term debt, the current portion of long-term debt (the part that’s due this year), and long-term debt.

Then look at the ownership part of the balance sheet, either owner’s equity (for a partnership or LLC) or retained earnings (for a corporation). 

The lower the ratio, the greater a company’s safety. The general rule of thumb is that a debt-to-equity ratio greater than 40 or 50% should be carefully watched.

Look at the debt-to-equity ratio of your business compared with other similar businesses in your industry to see how your business stands with industry averages.

Leverage is usually thought of as bank loans, but it can also be other kinds of obligations. For example, you might be able to use trade credit (using vendors as creditors) to leverage your company’s credit record by using vendors as a financing mechanism. 

Are You Familiar With Different Types of Business Loans? 

According to G2, many different types of business loans are available to small business owners, such as term loans, SBA loans, fixed asset loans, business lines of credit, and others with varying rates and payment terms. It is essential to apply for the correct one to ensure loan terms that you are capable of fulfilling. 

Getting The Best Business Loan

Funding a small business can be challenging as the risks are higher, both for you and for lenders. But sometimes seeking a loan is necessary to take your business to a higher level. If traditional banking institutions are unable to approve your application, there are other options for funding. The key is to search for a loan with a term and amount that you can reasonably payback. 
Inquire with Capital For Business today to see about getting the best business loan you need to grow your business!

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