When growing a small business, taking out a loan may be necessary to finance expansion. There are various financing options available; make sure to select the one most suitable for your requirements.
Banks are often the first place many people think of when seeking financing for their small business venture, but this could change in the future as alternative financing becomes more prevalent.
1. You Get a Lump Sum of Cash
When you receive a large sum of cash, such as from a tax refund, work bonus, inheritance, real estate profit or lawsuit settlement, it’s an ideal time to take out a small business loan. Not only will it meet your company’s immediate needs but it can also save money for future growth opportunities.
A small business loan provides you with the financial freedom to use your lump sum of cash however you see fit – for salaries, rent or equipment purchases, for instance.
Term loans are a popular source of small business financing, offering a fixed interest rate and predictable payment schedule.
2. You Can Get a Lower Interest Rate
Small business loans often feature lower interest rates than other forms of financing, as borrowers with good credit scores tend to pay back their debts faster, so lenders don’t need to charge extra to cover the risk.
Your ability to borrow funds will impact your interest rate, so it’s wise to compare different loan options before making a final decision. Use Nav’s APR Calculator to estimate how much it’ll cost and whether the advantages outweigh any drawbacks.
To qualify for a low-interest loan, you’ll need to meet certain qualifications. These include having good personal and business credit scores as well as providing collateral. Furthermore, some banks require that your business has been active for two years or more before they will consider your application.
3. You Can Get a Flexible Payment Schedule
One of the major advantages of taking out a small business loan is its flexible payment schedule. This is especially advantageous for product-based businesses and those with online stores.
Customers who can purchase a product now and pay later are much more likely to stay loyal customers, increasing your ecommerce conversion rates in the process.
Applying for a business loan can take some time, and lenders want to guarantee you have the ability to repay the loan on schedule. Having excellent credit – both personal and business – will make the approval process go faster.
4. You Can Get a Better Credit Score
One of the key advantages of taking out a small business loan is that it can boost your credit score. A high credit score can enable you to qualify for lower interest rates on future loans, ultimately saving you money in the long run.
Maintain a high credit score by always paying your bills on time. This is one of the major factors affecting your FICO(r) credit score.
One way to raise your credit score is by decreasing your credit utilization rate. This entails paying off existing account balances and keeping them low.
5. You Can Get a Faster Approval
Are you a business owner who wishes to expand? A small business loan is an ideal source of funding. This type of financing can enable expansion, purchase inventory or equipment, and take care of other necessary needs.
However, small business loans may not always be the go-to funding for startups due to their difficulty in approval. In some cases, traditional banks and lenders take weeks to approve a business loan application.
Alternative lenders provide fast business loans that can be approved within minutes. They use alternative credit data to determine eligibility, making it simpler to receive capital when you need it most. Plus, their can-do attitude often makes them ideal for small business owners needing quick funding.