Unless you’re planning to start an NGO without an eye for profit, you definitely need some capital to commence your business no matter how small it may be.
While you may have seen many posts online telling you that you can start a business online completely free without any capital whatsoever, that is actually false because if you want to take that small business to some heights, you’ll definitely need some cash to push the business operations, hire experts, market the business, and to create and package whatever product or service you are trying to offer.
But as an aspiring small business person, raising capital is the number biggest obstacle between you and that vision you have written down and planned out.
So how do you secure business capital or loan for our small business? Well, there are many ways by which you can achieve that. For example, you can apply for a business grant in your county if your government provides one, this form of loan is often difficult to get because there are even more people vying for the same and that is why many entrepreneurs often turn their attention to angel investors.
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An angel investor can typically be your partner, relative or close associate, who can quickly help you raise cash to get your feet in the water.
While the amount you get in some instances might just be enough to kickstart (depending on the kind of business you’re going into), you may need more money to scale that business in the future which is beyond the scope of this post.
S if you’re still at that early stage of your entrepreneurial journey and need some cash to kick off but in your case, you do not have an angel investor that can pour hundreds of thousands of dollars into your business, then you can get a small business loan.
So if you are wondering how you can secure a small business loan. then sit back, grab your anti-blue light glasses, and read every bit of this post.
How to get a small business loan in 2023
As a small business owner, securing a business loan can be a daunting task. It can be challenging to know where to start, what documentation is required, and how to make a compelling case to lenders because you need to really convince them that you’ll all do business with the money ad also return it back to them on time with the set interest rates.
However, obtaining a business loan can be a game-changer for your business journey, allowing you to invest in growth opportunities, expand operations, and manage cash flow.
In this article, I will guide you through the process of securing a small business loan, including the advantages and disadvantages of taking out a loan, where to find loans online, and how to increase your chances of approval.
The reality is that this route is definitely not for everybody. Some, more than others, might just be able to get a business loan from their local microfinance banks which might be much easier for them because of the community law and ease of access while others might require filling online.
As stated earlier, “taking loans” may not necessarily sit well with everyone but if you have done your due diligence and you are sure that your business endeavors will surely have a good turnover eventually, then you can go ahead even at that, there’s often no guarantees when starting a company considering the fact that over 60% of new business fail before their first year.
So it’s not just about filling out some forms online or walking to some local microfinance banks and demanding a US$100K loan to start your business operations. You’ve got some convincing to do.
Advantages of Securing a Small Business Loan
There are numerous advantages to securing a small business loan especially if you’ve already done your assignments and tick all the checkboxes.
Securing a small business loan can simply spiral your entrepreneurial endeavors to the next levels within months as cash might just be the constraint holding your operations back.
- Expansion: Business loans can provide the necessary funds to expand your business by investing in new equipment, hiring new employees, or opening additional locations. Even if you’ve already started, you’ll at least need to upgrade the quality of your products and services and that means investing money into new products/service research and development.
- Working Capital: Business loans can also provide working capital to help you manage cash flow during slower periods or when unexpected expenses arise. And in the business landscape, there are always some highs and lows to conquer.
- Building Credit: By making timely loan payments, you can establish or improve your business credit, which can help you secure better future financing.
- Independence: By obtaining a loan, you can maintain full control of your business rather than having to give up ownership to investors.
Those four points highlight the importance of securing a small business loan to advance your business endeavors but there can however be some downsides to this as well as discussed below.
Disadvantages of Securing a Small Business Loan
While there are many benefits to securing a small business loan, there are also some potential drawbacks especially when the plans aren’t correct or the timing is wrong. This can ultimately shatter your business goals and ambition.
Now that you’re owing a bank or a microfinance company, depending on the kind of deal you had with them, your inability to repay on time might make you lose your business in some extreme cases.
But let’s first talk about the obvious disadvantages of taking a business loan to run your small business.
- Debt: Taking out a loan means you will be in debt and will need to make regular payments. This can put a strain on your cash flow and limit your ability to make other investments or purchases.
- Interest Rates: Business loans typically come with higher interest rates than personal loans or credit cards, which can increase the total cost of borrowing.
- Collateral: Some lenders may require collateral to secure the loan, which can be risky if you are unable to make payments and risk losing your assets.
All the above can take a major toll on your mental health especially if the business planning wasn’t done right in the first place, Now, your business is dying, and you are in some serious debt, all of which could affect your life.
That is why you need the right tools in the first place in order to kick start because being on the right path and laying a solid foundation for your business from the beginning can take you very far.
Where to Secure Small Business Loans Online
There are many places to secure small business loans online, including:
- Online Lenders: Online lenders like Kabbage, OnDeck, and Funding Circle offer fast and convenient access to small business loans. These lenders often have less stringent requirements than traditional banks and may offer more flexible repayment terms.
- Traditional Banks: Many traditional banks offer small business loans. While the application process may be more involved, traditional banks may offer lower interest rates and larger loan amounts.
- Crowdfunding: Crowdfunding platforms like Kickstarter and Indiegogo can be a great way to raise money for your business without taking on debt. However, crowdfunding can be time-consuming and may not be appropriate for all businesses.
Let’s touch on each of the above small business loan sources.
Online lenders have become a popular option for small business loans due to their convenience and speed.
These lenders offer loans with less stringent requirements than traditional banks and often provide funding within a few days.
Although that may not necessarily be the case for all business owners that applies, the general consensus is that these institutions are more easy to access than traditional banks which is why they’re definitely the go-to when trying to get a small business loan to push your business to the net stage in 2023.
Here are some popular online lenders to consider:
- American Express Business Blueprint AKA Kabbage: They offer lines of credit up to $250,000 with repayment terms of 6, 12, or 18 months. The company uses automated algorithms to evaluate a business’s creditworthiness, making it a good option for businesses with lower credit scores.
- OnDeck: OnDeck offers term loans up to $500,000 with repayment terms of 3 to 36 months. OnDeck requires a minimum credit score of 600 and a minimum annual revenue of $100,000. So if you’re just starting from zero, OnDeck might not be the right option for you.
- Funding Circle: Funding Circle offers term loans up to $500,000 with repayment terms of 6 months to 5 years. Funding Circle requires a minimum credit score of 620 and a minimum annual revenue of $150,000.
While traditional banks may have stricter requirements and longer processing times, they may offer lower interest rates and larger loan amounts than online lenders.
Your best bet, in this case, would be your local microfinance bank which can be easily accessed in your community. However, there are some international banks that offer great loan plans for small businesses two of which we’re going to mention in this post.
- Wells Fargo: Wells Fargo offers loans up to $500,000 with repayment terms of 1 to 5 years. Wells Fargo requires a minimum credit score of 640 and a minimum annual revenue of $100,000.
- Bank of America: Bank of America offers loans up to $5 million with repayment terms of 1 to 25 years. Bank of America requires a minimum credit score of 580 and a minimum annual revenue of $100,000.
- Chase: Chase offers loans up to $500,000 with repayment terms of 1 to 7 years. Chase requires a minimum credit score of 680 and a minimum annual revenue of $100,000.
Crowdfunding platforms can be a good option for businesses that need to raise capital but do not want to take on debt.
Crowdfunding involves pitching your business idea to a community of investors who may choose to invest in your business if they are convinced enough.
For successful pitching, you’ll need to get yourself a solid business plan, and probably a prototype of the product or service you’re planning to offer. Create a demo for it and get a good pitch deck.
All these will show your commitment and readiness to take on your business endeavors and your path to business success. Below are some of the most popular crowdfunding places to secure funds for your small business online in 2023.
- Kickstarter: Kickstarter is a popular crowdfunding platform that allows businesses to raise funds for their projects. Kickstarter requires businesses to set a fundraising goal and offer rewards to backers in exchange for their support.
- Indiegogo: Indiegogo is another popular crowdfunding platform that allows businesses to raise funds for their projects. Indiegogo offers both fixed and flexible funding options, meaning businesses can choose to keep all or part of the funds raised.
- Crowdfunder: Crowdfunder is a platform that connects businesses with accredited investors who may choose to invest in their business. Crowdfunder requires businesses to provide detailed information about their business and investment opportunity.
There are several options for small businesses to secure loans online, including online lenders, traditional banks, and crowdfunding platforms.
It is important to research the options available and choose a lender that best fits your business needs and goals.
Remember to carefully review the terms and conditions of any loan before accepting it to ensure that you are making a sound financial decision for your business.
Tips for Securing a Small Business Loan
To increase your chances of securing a small business loan, follow these tips:
- Improve Your Credit: Your personal and business credit scores will be a factor in loan approval. Make sure you have a good credit score and work to improve it if necessary.
- Prepare Documentation: Lenders will want to see documentation, including financial statements, tax returns, and a business plan. Make sure you have these documents ready before applying for a loan.
- Have a Plan: Have a clear plan for how you will use the loan funds and how you will repay the loan.
- Research Lenders: Research lenders to find the best fit for your business needs. Look for lenders with experience in your industry and compare interest rates and repayment terms.
Securing a small business loan can be a game-changer for your business, but it requires preparation and planning.
By understanding the advantages and disadvantages of taking out a loan, researching lenders, and following these tips, you can increase your chances of securing the funding you need to grow your business.
Remember to carefully consider your financial situation and goals before taking on business loans.