Financing is one of the most difficult barriers that small business owners have to overcome if they want to stay operational. Nearly every startup will require at least some seed money so they can get their business off the ground so if you don’t have capital, you would have no other choice but to borrow money.
Borrowing Money from a Bank
Commercial loans are the standard choice of many small business owners and they are often used to finance a major investment. These loans usually have fixed interest rates and are often paid monthly or quarterly until the loan matures.
There are two types of loans offered by banks to business owners and entrepreneurs: long term loans and intermediate loans. Long term loans can go for as long as 20 years, and they are best suited for the more established businesses. That’s because these loans require collateral and getting approved can be next to impossible, for startup companies. Intermediate loans, on the other hand, are short term loans that can run as short as a few months to a couple of years. Banks do not require collateral for intermediate loans but the amount of money you can borrow is minimal compared to long term loans.
Business Finance Repayment Terms
When applying for a business loan from traditional lenders, you must prepare a detailed and comprehensive business plan. You have to fully explain your proposed venture as this will help the lender determine the right kind of financing to offer you.
But before approaching a lender, you need to decide how much money you need to borrow, the type of loan you need, for how long you should pay it, and if you can actually afford to repay with interest.
Business finance terms may be different for each lender but generally speaking, the lender will require a portion of the loan together with the interest to be paid to them at regular intervals. The amount you need to pay each month (or quarter) will depend on the term set by the bank and the duration of payment. Be aware that the longer the term of the loan, the more (total) interest you will need to pay.
Business Financing Challenges
Most startup companies do not realize the challenges they would face when they try to raise some capital. Although there are definitely many options out there, getting the financing they need is actually not easy. You can seek the help of venture capitalists and other kinds of investors, or go to banks and traditional lenders but none of them will part with their money easily. You have to go through a very stringent evaluation process with very little chance of success. That’s because many startup small businesses do not meet the criteria that lenders set – such as stellar credit history, sound financial background, and length of business.
The business finance terms offered by banks are attractive – low interest rates and longer repayment periods – but very few small business owners can really take advantage of the financing they offer. And that is why many have turned to alternative lending. Faster processing time and higher approval rating make these cash advance platforms suitable for businesses that need capital, now.