business loan

How Do Business Loans Work? The Guide to Getting Financing

Finding the perfect financing for your small business can seem like a hassle. We are here to tell you that after you understand how business loans work it seems less like a hassle and more like an opportunity.

If you require some business financing but do not know where to start, you are in the right place. Below we have created the ultimate guide for business loans.

What Is a Business Loan?

A business loan is a financial option that will help you meet the fiscal needs of a new business. The loan can be put towards things such as working capital, the purchasing of supplies or machinery, obtaining real estate, and helping with construction costs to name a few.

Usually, you will get a business loan to help fund the growth of your business. These loans can help you to jump on investments or even help you to stock up on inventory to help your business thrive.

The steps for applying for a business loan are as follows:

  1. Know how they work
  2. Know how to get one and the minimum requirements
  3. Be familiar with the different types of loans offered
  4. Know the different types of lenders and research them
  5. Apply!

Below you will find the answers to what types of loans there are and what lenders can help you finance your business.

How Do Business Loans Work?

Your business loan is capital loaned to you by a creditor. In exchange for this capital, you will be required to make monthly payments on interest and principal.

Once you are approved for your loan, you will have access to the money through your bank. If you have taken a business loan out through an online lender, they will wire the money to your bank account for easy access.

After you receive the funds, you can do with it as you please to expand your business.

How Do I Get a Business Loan?

How to obtain a business loan is not as bad as it sounds. Before beginning the application process, you should make sure that you meet the minimum requirements.

Your personal and business credit scores should be in good standing. A poor credit score on your end of the business can harm your chance at getting a loan.

Lenders will also take a peek at your credit report to see if you are in good standing with past lenders. They will also look to see if you make on-time payments.

It is also good to know that businesses less than 6 months old cannot get a business loan. This reality is because you usually need to provide at least 6 months of business finances to the lender.

After checking to see if you meet the minimum requirements as specified by your lender, you are ready to apply. You can apply for your loan online and get an answer within a few days. After being approved, you must sign some paperwork and then you will have access to the loan money.

Different Types of Loans

When starting to look at business loans, you will see that there are many different types offered. To help you find the best loan for your business we have created the following list:

Small Business Line Of Credit

You can access funds from the lender as needed. When you pay back what you owe, then you can borrow the full amount again. It is kind of like paying off a credit card.

Accounts Receivable Financing

Accounts receivable financing lets you get cash right away depending on your business’s accounts receivable. The line is then paid down as your customers put money into your business.

Working Capital Loans

This type of lending is used to finance daily operations. These are perfect for businesses that have little or no credit history.

Small Business Term Loans

These loans are a set dollar amount and can be secured or unsecured. They are great for businesses that want to expand.

SBA Small Business Loans

The Small Business Administration (SBA) backs some low-interest rate loans that banks offer to small businesses, because of being backed by the SBA the loan repayment and interest are lower.

Equipment Loans

This loan is great for businesses that only need to buy equipment. You will be required to put a 20% down payment on the loan and then the loan is secured by the equipment you purchase.

Types of Lenders

You may think that the only way to get one of the loans above is through your local bank. In today’s world, this option is not the case anymore. There are multiple places you can apply and get approved for a loan.

  • Online Lenders- The application process is online and access to your money is also online.
  • Commercial banks- This option is the traditional way to get a loan, through a large bank such as your personal lending institution.
  • Community Banks- These can include small banks limited to your town or even credit unions in your area.

Now it is time for you to research the lenders in your area and online to find the best fit for your business.

It Is Time to Apply For Your Loan

You now know how business loans work and the different types of loans. We have even informed you of the general minimum requirements for getting approved and laid out the different types of business loans you can get.

Now it is time to decide what loan is best for you and your business. After deciding on a loan, you then need to pick where you want to borrow from. After making these decisions, you are a few days away from receiving your cash.

For more fiscal information, check out our website here.

Combining a high level of personalized service with a cutting-edge lending platform, Formula Funding delivers an unparalleled banking alternative. We offer a fast and efficient option to get your business the critical funding it needs without the red tape. We work with all credit grades, tax liens, judgments, and charge-offs – something unheard of at a traditional bank. Since 2010 over 15,000 small business owners have used our funding sources to grow and expand.