A Guide to Obtaining Small Business Loans

Small business owners often believe that obtaining a loan for their business is impossible in today’s economic climate. Banks are lending out less money and lending guidelines are more stringent. It appears you must prove you don’t need a loan before you can qualify to get a loan.

Obtaining small business loans isn’t impossible if you are able to answer the 5 W’s:

  • Why do I need a loan?
  • When do I need the money?
  • What type of loan do I need?
  • Where do I obtain the loan?

This guide can help you understand how to answer these five questions so that you can make sure that you obtain the financing you need for your small business.

Why do I need a loan?

At first the answer to this question seems obvious: you need money for your business. However, the answer can’t be that simple. You need to let a lender know how you will use the money you receive. Are you looking to:

  • Start a new business?
  • Develop and launch a new product?
  • Purchase more equipment?
  • Meet payroll until customers pay outstanding invoices?
  • Cover expenses during your slow period?
  • Buy a new building?

Once you are specific regarding the reason you need the loan you can then determine the type of loan you need and the type of lender who will be best able to meet your small-business-loans-onondoga-countyneeds.

When do I need the money?

Another question you need to answer to obtain a small business loan in Upstate New York is “When do I need the money?”

Are you short of funds due to an unexpected expenditure and you need money right away? Have you been planning a product launch for the last few months and are now ready to start development? Or do you know that January and February are always slow for you and you are looking for a way to cover upcoming expenses?

Emergencies happen and if you need money as soon as possible there is funding available, however that will limit your options regarding the type of funding you can obtain and the lenders that offer those type of loans. With planning, you will have more options and the ability to receive the best loan for your needs at better rates.

What type of loan do I need?

The type of loan you need depends on why you need the money, when you need the money and your financial standing. When you are looking to answer this question, you need to consider:

  • What is my personal credit rating?
  • Do I have collateral?
  • How long have I been in business?
  • How much money does my business make?
  • Will I be able to make payments on the loan I receive?

You may not like to think about these questions and the answers may not be what you hope for. However, you need to be honest with yourself and don’t think that a poor credit rating or no collateral means you don’t qualify for a small business loan. There are many different types of credit available and some financial institutions are more flexible than others are.

Depending on the type of financing you need, you may be able to apply for:

  • A business credit card
  • A business line of credit
  • A personal loan
  • A merchant cash advance
  • A term loan
  • A SBA loan
  • Invoice financing
  • A microloan

These different loan options make it easier to meet almost any business need you have, even if your financial status is less than favorable.

Where do I obtain the loan?

Once you know the answers to the first three questions, you can then consider the most important question when obtaining a small business loan: Where do I get the money?

Your first thought  may be that you need to go to your local bank and apply for a traditional business loan. That isn’t the case anymore. The recent economic crisis provided an opportunity for other, less traditional lenders to step in and offer alternative financing to those who don’t want or can’t qualify for a standard business loan.  These lenders include:

  • Credit unions
  • Microlenders
  • Online financial institutions

These lenders are more flexible if you are a new business, your company doesn’t generate a lot of revenue, or you don’t have traditional collateral such as property or equipment. You may have to pay a higher interest rate but the payments are often still affordable so that you can repay the loan without having to give up a percentage of your business.

Obtaining small business loans takes planning, research, and a willingness to think freely in terms of the type of loan you want. Even loans to satisfy an immediate need require some consideration.

If you are looking for a loan for your small business you should start your research by understanding your current situation and your options. You can talk to our loan specialists to get started.

Published June 14, 2017 by Carol Chernikoff in Finance


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