Top 4 Ways to Get Business Loans
Top 4 Ways to Get Business Loans
Owning your own business in a difficult economy can be rough at times and often require an injection of working capital. Whether you are looking to maintain your daily business operational expenses or you are looking to expand your company a business loan is usually a great option. Although the financial lending environment is highly restrictive there are several ways to get a business loan if you own and operate your own business.
The best way to acquire a business loan for your existing business is to go to a bank. Due to the government regulations imposed by regulatory bodies banks are limited in how much interest they can charge on a loan. Although this rate differs from bank to bank it is based on the existing prime rate and there is a limit on the premiums banks can attach above the prime rate.
There are 2 main factors however that have the most impact on whether or not you are eligible to borrow from a bank. First, the type of loan you take and how much collateral you offer establishes the risk level associated with funding your business. Equally as important is your credit history at the time of your application. Chances are that if you do apply to a bank for a business loan, you are going to require a stellar credit history in the high 700’s and you also have a substantial amount of collateral to provide. If you can manage the requirements imposed by banks you are likely to receive the best rates and terms when looking to get funding for your business.
What is the case more often than not is that you will have to look outside of a bank for funding. It is not just the strict credit requirements that will make you seek an alternative, it is simply that business loans for less than $1 million offer very little profit for banks and there are many other ways that they can make more money with less risk. As this has been the case for several years now many secondary funding resources have surfaced.
The internet has contributed to the growth in so many industries, but very few can attribute such enormous growth as the business loan industry. One internet platform in particular that is seeing that growth is crowd funding. This type of funding resource offers small business owners an opportunity to reach out to multiple investors for money for their business. The two main crowd funding models are donation based and investment crowdfunding. The former allows individual business owners the opportunity to incentivize multiple donations by offering products or gifts in return for a loan. The latter, allows business owners to offer equity ownership and a chance at financial returns for those investors that provide funding.
An equally growing platform that is attracting potential borrowers is peer to peer lending. This type of lending involves online platforms that match potential borrowers with potential investors. The borrower submits an application for a business loan and is matched with investors based on particular criteria, mainly determined by credit score. The better your score, a minimum of approx. 650 is required, the better rate you receive on your business loan. The investors are pooled together with personal investments into the platform of as little as $25 with the opportunity to choose what level of risk they lend into.
Both crowdfunding and peer lending can be a very good resource if you are willing to take the time to investigate the different platforms available and are willing to put in the effort involved with getting a loan on these platforms. One solution may be good for one borrower and the other may be a better option for a different borrower. For instance, the two major peer lenders generally offer loans for $35,000 or less. However, the process is less proactive. Crowdfunding does not generally limit the amounts that can be borrowed, but you have to be very proactive with your campaigns and incentivize investors with unique gifts and stories. There are alternative lenders that do not require a lot of application effort, and they are very flexible in their credit requirements and funding amounts.
Alternative or private lenders are online business loan companies that pool together personal money to lend to small business owners. Because the money is private the lending requirements are created in-house and differ from lender to lender. What is standard however is the application and funding process with these online lenders. The application process involves very little paperwork and can generally be completed in a matter of days, and also there are no credit score requirements. Business owners can receive funding with credit scores below 600. If you have bad credit or for many other reasons the above mentioned options don’t work for you these business loans can be a great alternative.
Although there are other options for funding available today such as private investors or government grants, the four most popular ways to get a business loan today are from banks, crowdfunding, peer lending, and alternative lenders. Each offers a completely different type of funding but they all have potential and for one reason or another may be perfect for your business.