Follow 3 key steps to identify the best small business loan for you — one that’s right for your specific needs and financial profile.
Step 1: Examine Your Goals
To determine the best types of business loans for you, examine your goals and why your small business needs funding.
Certain types of business loan financing may be better for you than others. For example, if your objective is to purchase seasonal inventory you intend to turn in 90 days, it’s not the best decision to take out a 10-year loan. As a general rule of thumb, debt shouldn’t outlast the life of an investment.
Long-term loans are the better choice for capital-intensive projects, where you may not see an immediate return on your investment.
To cover short-term capital needs, consider:
- Short-term loans
- Merchant cash advances
- Business lines of credit
- Invoice factoring
To pay for long-term, capital-intensive projects, consider:
- Business term loans
- SBA loans
- Equipment financing
Step 2: Find the Best Small Business Lenders
When researching the best small business lenders, your selection will likely come down to two variables: your business’s financial profile and how quickly you need funds.
You can apply for a small business loan with one of the following types of lenders.
Conventional Lenders (E.G., Banks and Credit Unions)
When applying for a small business loan through a bank, applicants go through a multi-step process that can take as long as 6 months.
Business owners are asked to complete an application and meet with a loan officer in person. Sometimes you’re required to present a proposal for how you intend to use the funds – and how it’ll benefit your business.
When applying through a bank, their small business loan qualifications are high. If your credit score is below 660, you’re just starting out or your revenues are modest, your chances of securing a small business loan from a bank or credit union are slim. This challenge may be exasperated due to recent economic challenges. According to a 2020 Federal Reserve Bank of Kansas City survey, 21% of banks are tightening their credit standards.
Alternative Business Lenders
Alternative business loan providers have simplified and streamlined the application and approval process. Applying for a small business loan online can take minutes. Plus, with alternative business lending, the approval and funding process is shortened from weeks to days. Depending on the type of online small business loan you’re applying for, funds can be deposited the same day you apply.
Alternative lenders are often willing to extend credit to higher risk borrowers in return for higher interest rates and other less favorable terms. If your business is new or you’re working to repair your credit, you could still qualify for funding.
Step 3: Estimate What You Can Afford
The next step to identifying the best small business loan for you is to estimate what you can afford.
Determine how much capital you need to achieve your goals and how much you can afford to pay back. To do this, take a hard look at your cash flow. Compare your cash flow against the loan’s payback requirements and other debt obligations.
Next, factor in any returns you expect to receive as a result of your investment. This is a great way to make sure you’re not taking out too large (or too small) of a loan.
Why Fast Capital 360?
You know a lot about what it takes to run a successful small business. But if you’re not a finance professional, navigating through different lending products can be confusing, time-consuming and intimidating. You don’t have to go at it alone.
Fast Capital 360 has helped businesses compare loan offers and access the capital they need to grow through expert guidance.