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The Basics Series: Small Business Loans Basics

 What are the Small Business Loans Basics?

Small Business Loans Basics:  A small business loan is a loan, as the name would suggest, is a form of loan provided to a small business.  This small business loan can be used for a variety of purposes ranging from start-up costs to business expansion.  The loan must be repaid to the lender plus added interest as per the loan’s terms and conditions. The interest  portion of a small business loan can be either fixed or variable.  A fixed interest rate will not change during the duration of the loan while a variable interest rate loan can be changed based on several different conditions. A Business Loan can be key for the successful growth of a businesses since they provide a great opportunity to get financing to fit their needs.

Small business loans from Alternative Lenders like IMMFinancial.com usually have more flexible requirements allowing the companies to get financing with reduced requirements.  Please do note that not all companies will be qualified to receive a loan.  The lender will first require a formal application so they can do a credit check.  This credit check is an investigation into the debt history of the company.  This is part of an analysis to create a feasibility analysis for the company (likelihood to fail or succeed).  In doing this, the lender will be able to gauge the success of the companies ability to repay the loan.

The main purpose of such a loan is to allow the businesses to get the liquidity needed to a start-up or to help with a business expansion.

Small Business Loans Basics:  Types

Small Business Loans BasicsSmall business loans come in several types, below, are the most common:

  • Traditional Bank loan: A bank would be the lender in these cases and the loan can be either secured (collateral based), or unsecured (no collateral required).
  • Alternative Lenders:  A non-bank lender will have more flexibility in their programs than banks will have and will normally require less collateral than a bank would.
  • Long-Term loan: The purpose of these loans is usually to help a business with an expansion goal. As a result, will most likely require collateral and have a higher interest rate.
  • Short-Term loan: This type of loan is used to help raising enough cash for inventory, and other capital needs of the company. This particular loan type will usually have a lower interest rate and may not require collateral.
  • Asset-based financing:  Asset equity is key for this loan type.  As a result, the quality of the collateral will then play an important role in such a financing program.
  • Start-up loan: Loan granted to small start-up companies.
  • Business Acquisition Loans: Loans granted for the purchase of an existing business.

A Long-Term Loan would generally be something that requires payment lasting over 1 year.

The Short-Term Loan would typically be designed to be paid back in under 12 months.

Small Business Loans Basics: Pros and cons

The advantages of a small business loan:

  • The terms of the loans tend to be more favourable to the company borrowing the money.
  • Sometimes there are government guaranties which reduce some of the lender’s risks.
  • You can have a lot of loan options.
  • The loans are very convenient.
  • Some loans types offer tax benefits.
  • In addition, and perhaps most important, they are accessible to most businesses.

The disadvantages of a small business loan:

  • First of all, it can be difficult to get an approval for this loan from a bank.
  • In addition, the lender might require several types of paperwork or supporting documents.You may have to pay some additional fees.
  • You can end up losing your collateral.
  • Most noteworthy, preferences are giving to running businesses.

In conclusion,  Small Business Loans are done for a small business to help with its financing needs and are based on the historical sales of the company.
The loans either have a fixed or variable interest rates as defined by the lender. As a result, those loans can be very useful for many small companies that are just starting up, and they usually have more flexible requirements. Remember, not all companies will be qualified to receive a loan since they will have to first comply with several requirements and prerequisites from the lender.

Most of all,  in order to receive the financing that the business is looking for needs to be a going concern.  In other words, be likely to prosper.  Risky ventures are more difficult to get funding for.  This means that you need to structure you business to be as conservative as possible when looking for a Small Business Loan.

References:

http://www.businessdictionary.com/definition/small-business-loan.html
http://sbinfocanada.about.com/cs/financing/g/smallbizloan.htm
http://www.businessnewsdaily.com/7695-small-business-loan-guide.html
http://businessgross.com/2013/03/16/small-business-loans/
http://smallbusiness.chron.com/disadvantages-small-business-loans-246.html

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