Choosing to finance your business with a loan, line of credit or credit card can be daunting. Indeed, whether it’s navigating through the required paperwork, making an application or even knowing where to start, it can be discouraging to see one’s lack of knowledge in the matter.
According to an Equifax Canada survey , more than half of small business owners do not feel supported by their bank, other lending institutions or government. 26% of business owners worry about their ability to repay their current loans.For many small business owners, cash flow management issues are a frequently cited source of stress. Loans are a way to invest in opportunities such as expanding or covering your current expenses.
What is a business loan?
A business loan is an agreement between a business owner and a bank or private lender, in which money is received for future repayment of principal and interest. Business loans are specifically for business purposes.
Business loans can be secured or unsecured. A secured loan means that the borrower offers property as security if he does not repay the loan. An unsecured personal loan, on the other hand, does not require any property offered as collateral.
There are many types of affordable loans for small businesses. Here are some examples of the most common types of business loans:Commercial Line of Credit: A commercial line of credit is flexible, revolving capital that gives you access to cash.
Business credit card:
A business credit card is intended for business rather than personal use and can help business owners build credit, which can translate into better loan interest rates . Commercial term loan: this loan is a lump sum of capital to be repaid in fixed instalments over a fixed period of time (called a term).
Canada Small Business Financing:
The Canada Small Business Financing Program offers several different loans for small businesses, up to a limit of $1 million per borrower. Of this amount, a ceiling of $350,000 can be used for the purchase or improvement of goods or equipment.
Also more https://ramneeksidhu.co.uk
Equipment loan :
Read more https://ramneeksidhu.co.uk
Accounts Receivable Financing:
Accounts Receivable Financing allows businesses to receive prepayment of overdue invoices. The three common types of accounts receivable financing are traditional factoring, selective receivables financing, and asset-based financing.
Merchant cash advance:
A merchant cash advance is a loan repaid by a percentage of your business’s future credit or debit card sales. This type of loan means that you are borrowing against future income from your business. It’s more of a cash advance than a loan, but it’s still an alternative to more traditional types of financing.
What do you need to apply for a business loan
As a small business owner applying for a loan, there are several institutions you can go to for a small business loan. Online lenders, banks, and peer-to-peer lending sites are just a few examples of types of lenders. If you’re a Square merchant or use Square, you may be eligible for a loan through Square Loans .
When you apply for a loan of any type, the bank or other lender may want to see certain documents, including the following:
Information on how the loan will be used;
Your business plan : a plan that describes all facets of your business;
Your personal history and financial status: the lender will likely look at the company’s credit report, but they may also look at the personal credit report if you have very little borrowing history;
Loan application history;
The company’s financial statements, which may include statements of income and expenses, balance sheet and projected financial statements;
Resume: A loan application will include a professional resume to let the lender know about your experience in the industry in which you run your business.
Legal documents: This may include documents such as a business certificate or licence, commercial leases and contracts you may have with third parties.
BUSINESS LOAN ELIGIBILITY
Lenders consider a few criteria to determine if applicants are eligible for a loan. Having a good business credit rating is one way to strengthen your case when applying for business credit and loans . Each lender has different minimum requirements and qualifications for what will make an applicant more or less eligible, but they generally include:
Credit: in this case, credit refers to the solvency of a company;
The duration of activity: the number of years of activity of the company (for example, if the company has just started or if it has been in activity for several years).Collateral offered: tangible assets that could be used to secure a loan (only in the case of a secured loan).
Cash Flow : The amount of cash flowing in and out of a business.
Debt: the sum of your debts.
Sector of activity: the sector in which your company operates brings together a group of companies that process the same raw materials, goods or services. For example, you could operate a business in the food industry or in the health care sector.
SIZE OF BUSINESS LOANS
The size of a business loan is the dollar amount of the loan, which can be determined by several factors such as debt to income ratio, credit rating, etc. A lender determines the size of the loan it can grant to a borrower. This is a delicate balance to strike, as sometimes borrowers may be offered a larger loan than they actually qualify for.
FINANCING AND REFINANCING OF BUSINESS LOANS
The term “financing” refers to the process of providing funds to companies . There are two types of financing: debt financing and equity financing. The loans fall under the category of debt financing, which means that they must be repaid with interest. The loans have different durations , ranging from a few months to 25 years.