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Business Loans 101: A Guide to Borrowing for Your Small Business

If you own a small business or intend to buy or start one, you will probably be borrowing money at some point – and possibly more than once. You may need money for startup costs, expansion, cash-flow management, disaster recovery, or any number of uses requiring operating funds and/or capital investment. Unless you have a money tree, trust fund or fairy Godmother, you may need a business loan to tide you over when cash is tight.

Typical types of small business loans include:

  • Standard Term Loans- They may be secured (using company assets as collateral) or unsecured (based only on the credit rating of the business). Personal assets can be used as collateral for secured loans, but with obvious risk.
  • Startup/Acquisition Loans-Funds used to start up a business or acquire a business/franchise. To convince a lender, startup loans will often require a sound business plan and the use of personal assets as collateral to persuade the lender.
  • Lines of Credit-These are short-term loans to smooth out cash-poor periods. They may be secured against business inventory, or unsecured if you have sufficiently good business credit. These types of loans are generally high interest and must be managed carefully and paid promptly.
  • Factoring- Effectively selling your accounts receivable for short-term cash flow (typically 1 month or less).
  • Revenue-based Funding- A loan where the lender is paid back in a percentage of the company’s revenue until the loan is fully paid off.

Not every businessperson can borrow from family or friends, and it is often not a wise idea. Some people can relinquish equity to angel investors and venture capitalists. Your typical source for loans will be standard financial institutions such as banks and credit unions.

Local banks are the place to start; they are often more likely than larger, more bureaucratic institutions to provide loans to small businesses. They’re also generally more flexible and willing to work with you. It’s usually best to keep your lines of credit local if rates are favorable.

A relatively new source of lending is peer-to-peer services (from online lenders like Prosper or Lending Club). Being peer-to-peer, these lenders do not have the overhead of banks and are usually less expensive – but they are lending directly to you instead of to your business. If you have a hard time convincing a bank of your creditworthiness, you may not fare much better here.

Small Business Administration (SBA) loans are a bit of a last resort. They require you to exhaust all financial resources first, including personal assets – but if you are in this position, it is worth checking to see if you qualify. The definition of “small business” varies by industry, but it’s generally less than 500 employees for manufacturing, and less than $7 million in net worth for other industries.

The SBA does not lend directly to businesses. They partially back the loans, reducing the risk to the lender and making it easier for them to provide small business loans. The SBA offers three primary types of loans:

  • General Small Business Loans – Known as 7(a) loans, they can provide up to $1 million to be used for most business needs (except for financing existing debt).
  • Microloans – Up to $50,000 is available per loan (typical loan is $13,000). There are often training requirements included.
  • CDC/504 Loans – These are for large expansion items such as capital equipment and real estate.

The SBA also offers disaster loans for those in areas that have been officially declared disaster areas.

Don’t forget to check for alternate government assistance. State and local economic development programs are worth reviewing; they may be able to help you secure loans or acquire grants. Programs are also available to help veteran and minority-owned businesses. Even if you do not qualify for an SBA loan, local offices can offer training, mentor programs and other helpful resources to entrepreneurs

How Do You Find Time For Setting Up An Online Business?

The motive for setting up an online business is very clear to plenty of people. The online economy is growing and the possibilities of reaching customers around the world and generating extra revenue is very attractive to new entrepreneurs. But many abandon their business ideas because they don’t think they have the time. We all have the same 24 hours in each day and the answer is not about miraculously finding more time. The key is to control the time available and make it work more efficiently.

Setting Up An Online Business Step By Step.

In some cases, when it comes to setting up an online business, some people have the notion that it is all or nothing. They think that to start your own online business, you have to jump in head first, give up your day job and put all your energy into creating your new internet business.

If you currently have a day job that pays the bills and gives you with other benefits, hold onto that job whilst you work on setting up an online business in your spare time. To get this done, you can get up an hour earlier in the mornings and use your lunch hour to work on your new business. Setting up a web business means that you can get access it just about anywhere as long as you have a computer and an internet connection.

You can also cut down on the amount of time you spend sitting in front of the TV. Additionally, you can give up one hour of sleep at night to work on the business and work a couple of weekends each month.

It may seem like a lot of time, but if you work it around your day job and stick with it, you can steadily increase your income while setting up an online business until you can comfortably afford to let go of the job you now have.

Take Action To Reap Rewards.

Another situation could be that you are made redundant from your day job through no fault of your own or your job you hate your job so much that you just have to leave now. All of a sudden, you find yourself having the same forty or so hours you gave to the day job now available for setting up an online business. Always get started immediately. If you wait around and waste time you could lose valuable motivation to get started. Let the enthusiasm drive and push you forward.

With the benefit of working full time on your online business, you’ll be able to dedicate the continual attention the business needs to grow. Rather than squeezing it into a tight timetable, you will have the time you need.

There has never been a better time to start setting up an online business. There continues to be an increasing number of people buying goods and services on the internet each year. Online consumer spending shows no signs of slowing down. The time people already spend shopping on the internet by using laptops and desktop computers is increasing with time spent browsing and buying by way of smartphones and tablets. That is translating into a faster growth in online sales.

When setting up an internet business, it’s not so much about finding the time as it is taking the time. Today will quickly be yesterday and you won’t ever get that opportunity back again.

Introduction to Business Loans

Business loans refer to the transfer of funds from a lender, usually a financial institution, to a borrower. In this case, the borrowers are businesses and the financial institutions are banks. The interest to be paid and the schedule of repayment are decided by the bankers and the borrower agrees to those terms. Lenders may offer unsecured or secured loans. Secured loans require collateral, which are generally personal assets, such as the home of the borrower. However, when talking about business loans, collateral is something owned by the business – machinery, real estate,

There are many reasons for businesses to get a loan. Some may require additional funds for the expansion of the business, or offering additional services, while others would need funds for making various small or big purchases. Lenders take quite a few factors into consideration while extending these loans. First, they would check the credit worthiness of the business. They would also evaluate how far the business has been successful and the likelihood of its being profitable. Procuring loans for a new company is indeed very challenging, and the credit history of the individual borrower is almost the sole criteria for taking the decision.

As the lender would naturally like to ensure that the borrower has the capacity to pay back the borrowed money, the borrowers need to fulfill some very strict prerequisites for availing the loans.

If the risks connected with the loan are rather high, it is generally a better option to seek investors from within the family or the social circle that could lend money or buy a part of the business. Banks are certainly not keen to offer loans carrying a high risk. Small businesses needing smaller loans could check with government sources that lend money, or other companies offering micro-loans, as their perquisites for extending loans are not so tough.

Businesses that get loans at the time of getting started have the advantage of building their credit history as the business grows. As in case of personal loans, businesses too must ensure to pay back the borrowed funds within the stipulated time. Failure to make timely payments harms the credit history of the business, making it difficult to procure any business loans in the future. Banks plus other lending institutions not only consider the credit rating of the business, but also its profits in the past as well as the profit the business is likely to make when being granted the loan.

As far as the citizens of the US are concerned, those that are looking for loans in order to start a new business or continuing with the present one should look into a good source before approaching any banks. The US Small Business Administration is a government body that provides financial support to small business. Though everybody may not be granted help via this program, one should certainly make a sincere effort and try, as the loans available under this program carry a lower rate of interest, and the terms for paying back the loan are not so difficult.