Guide to
Small Business Loans
Small Business Loans
Whether it’s to power growth, invest in key equipment or simply prevent a cash flow problem from becoming a cash flow crisis. But which type of small business loan should you take out and where should you look for finance?
The most important thing to do when seeking small business finance is to talk to a number of different providers. Banks and alternative lenders like Cashsolv have quite different acceptance criteria, so it makes sense to cast your net widely to see what’s available. Once you have a few offers on the table, you should compare them both for their advantages and disadvantages and for their relative cost.
Some lenders may express small business loan charges as a flat interest rate and others as a factor rate; make sure you’re aware which loan type you are taking out so you don’t find yourself comparing apples to oranges. Similarly, make certain that you can afford any structured repayments: there’s no point in taking out a five-year term loan and discovering you’ll have to borrow again to meet the repayments after six months.
It’s also crucially important to make sure you’re entirely honest with your lender. Sugar-coating your company’s financial situation to make sure you get accepted isn’t going to do anybody any favours.
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If your business is ready to take on a new opportunity, but you don’t have the working capital to do so then you may want to consider applying for a small business loan. Here are just some of the more common uses of a small business loan.
1. To improve your cash flow
It may simply be that your company currently doesn’t have sufficient cash flow to fund the day-to-day costs of running. A small cash flow problem can quickly amount into a financial problem that threatens your survival, so it is important to tackle the issue fast. Perhaps you’re routinely effected by late payments or you’ve recently received a large tax bill that wasn’t accounted for. Alternative finance providers, such as Cashsolv are able to provide working capital loans instantly in the scenarios and the money can be in your bank within 24 hours. Such loans will ensure you don’t miss a payment deadline, or indeed even perhaps forgo paying your own staff.
2. You may need equipment for your business
Perhaps you need specific machinery, IT equipment or tools for your business to stay ahead of the competition. And obviously many businesses need to keep up with ever changing technology. Unfortunately, the cost of upgrading or buying new or more equipment can be too costly for many businesses and they will need to turn to loans to purchase equipment which may help you to improve profits in turn.
3. Marketing or advertising initiatives
In most cases you have to spend money to make money, and in order to build awareness and interest in your product or service the cost of advertising and marketing can be too high for many. Perhaps you are pursuing a new product or market and you will need to make an initial outlay in promotion before you can benefit from additional sales.
4. Purchasing additional stock
The need to purchase enough inventory before seeing a return on your investment can prove very difficult. Particularly if there is a new opportunity to expand and bring on a bigger customer or venture into a new market. It is a good idea to calculate your risk in this instance and create a sales projection to ensure it will be a wise move for your business. Or you may just be a seasonal business who struggles at Christmas for example in terms of ensuring you have enough stock on hand to meet demand.
5. You’re seeking fresh talent
You may be ready to expand into a different area of expertise, or perhaps your business has just outgrown the limited number of staff you have to get the job done. Whilst there is a clear benefit to be seen from taking on more employees or investing in a skills boost, it can take some time to see the payback and so often the investment requires some funding. A small business loan will help you to keep from falling behind your competitors and starting to make costly mistakes due to lack of talent or spreading your staff too thin.
If you are applying for a loan through a bank then you can expect the process to take a while, realistically in this case you should apply a couple of months in advance of needing the funds. However, if you are looking at alternative lenders then you can expect to receive your loan much sooner.
For example, at Cashsolv we will process a small business loan application and have the funds within your account within 24 hours, making it ideal for all those cash flow emergencies.
If you were looking at a long-term loan then they can often run for as long as 10 or 20 years, however here at Cashsolv we know that small businesses generally need the money to fund something more short term and to cover an emergency.
Our small business loans can either be taken out between one and three months of duration with the balance paid in one instalment at the end of the loan, or between one and 12 months for those that require monthly instalments. In each case the money will be in your bank within 24 hours
Even once you have narrowed down a potential lender, it can be difficult to know what the next steps should be. After determining what you need the loan for, one of the most important things to understand is exactly how much financing you are going to ask for.
Be careful to make sure that you don’t just take on more than you can afford as you won’t want to end up as a business that is completely saddled with debt. On the other hand make sure you borrow enough to cover your needs. Try using a business loan calculator such as our own and play with the amounts and repayment periods to understand exactly what the cost will be to your business, leaving enough to comfortably cover other expenses.
To ensure that you can afford a business loan you should calculate your Debt Service Coverage Ratio (DSCR) . This calculation will highlight if you need to decrease your loan amount.
Cashsolv are the experts in small business loans, and we’re here to give your company the money it needs to get ahead. With acceptance criteria quite different from those of banks and a streamlined application process, you’ll find we can often say yes when the computer says no. To discover what we can do for you, please visit our business loans page.
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