If you have a business, you know well that not every month has good results as expected. Therefore, it is common to face financial difficulties. When that happens, you may need extra help. Do you know how do business loans work and what type can be better for your company?
Although not being a good thing, financial problems can happen for different reasons, and you must be prepared to deal with them. With business loans, entrepreneurs can get through hard times and put their finances on track again. If you want to know all about it, keep reading our article!
What is a business loan?
First things first, what is a business loan? As the name suggests, it is a special type of loan for businesses. Even with a different name, it is just like other loans. The application process is quite simple: choose a lender and the amount needed, then wait for the analysis.
The difference between regular loans and business ones is that, as the lender analyzes the documents, they can make you another offer. That means the lender wants to borrow you money, but a smaller amount, which is probably more easily repaid.
Usually, companies can ask for more money than they really need and return it monthly. However, the acceptance of the value asked depends on the credit rating, the size of the company, and the financial situation of the business, which is verified by the documents submitted to the lender.
Before you get to know how do business loans work, you also need to learn about the types of loans available for companies of different sizes. The first one and the most well-known is the Small Business Administration loan (SBA). It offers longer terms and easier qualification to help cover costs, capital needs, and real estate expenses.
Another type is a business line of credit, similar to a credit card that gives access to a flexible amount of money. Once you have the money, you must use it on the period limited by the lender (generally 12 to 24 months). After you spend it, you have to repay it with interest also informed earlier on the agreement.
Other business loans
For day-to-day expenses, like payroll, the company can apply for a working capital loan. It is a type that permits larger amounts of money, but in general, it is easier to access in order to have higher interest rates.
In case the need is not to pay bills, but to buy new equipment, a different option is equipment financing. With this online business loan, the company can have more money to improve their work environment and pay over years.
What is it used for?
If you want to learn more about how do business loans work, you probably know why companies need to apply for it. One of the reasons this type of loan is taken is to cover startup costs at the beginning of the activities. Another one is to remodel the company over the years.
Many reasons lead the companies to ask for financial help. Yet, when it comes to remodeling the business, the money can be used for: equipment purchases, marketing and advertising, real estate purchases, and business franchising.
The money can be used for regular expenses on daily activities of the cash flow, such as equipment repairs, or to cover the expenses in the low season for a few businesses.
How does it work?
Now it is time to understand how do business loans work. The first step is the application process, when the company must submit a list of documents, including identity proof, address proof, bank statements, income proof (latest ITR and balance sheet), and legal documents (business licenses, copies of contracts, and franchise agreements).
The second step is the lender analysis. It depends on a few requirements that judge the qualification of the business on taking the money. Examples of criteria are a minimum credit score of at least 630, a minimum annual revenue, the time of business (for at least 6 months), and collateral. The collateral is important for secured loans that use something as a guarantee if the payment is not completed.
The last part is the payment, which varies according to the amount taken. If it is a smaller amount, the lender can give months to the return. For larger amounts, it is reasonable to have more time to pay it over the range of one to five years.
How to get a business loan?
If your question is how to get a business loan, don’t worry, because it is simple! Besides knowing the steps of the process, you need to understand what can positively or negatively affect the analysis. When it comes to business loans, credit score is even more important.
It qualifies the company and determines if the lender can trust his funds to a short or long-term loan. If the company has less than six months, it is more likely that the lender will not accept the offer. In that case, a tip is to submit the business plan to draw the next steps and show organization.
Another alternative for an easier process is to look for loans for startup companies. Lenders that deal with startups are more flexible and tend to take more risks because it is not possible to predict the success of the business.
Get more financial information at OneBlinc!
Now, you know how do business loans work and can prepare yourself to take this special loan. If you are also interested in personal loans, keep reading our blog and count on OneBlinc to find the best financial solution!
Unexpected things happen more often than we would like them to. That’s why OneBlinc is here to help, whether you have an emergency or just need that extra cash to go through the end of the month. We believe in people, and we understand that everyone might need money someday, somehow.