You’ve decided to take the plunge. You’ve quit your 9-to-5 job. And you’re starting your own business.
Even if you’ve saved up for this move, chances are, you’ll probably need a loan to ensure your business is off to a good start.
There’s employee salaries, equipment and inventory purchases. Not to mention, office space to rent.
Plus, months after starting your business, a pipe may burst. Or your equipment is damaged. In which case, a loan may be necessary.
Read more to learn about fast business loans, as well as what you need to do to get the loan process started.
Types of Business Loans
Here are three common types of business loans you should be aware of.
Unlike installment loans, the entire principal is paid off on the last day of the loan. Throughout the loan period, you only pay the interest.
As this Entrepreneur article states, this loan is recommended if businesses know they’ll be paid a large sum on a specific day.
Essentially, this type of loan increases the amount of available cash to the limit of the loan contract.
Being that this is a loan, you’ll pay interest on it. However, the interest rate is usually low since banks see this as low risk.
Know that line-of-credit loans are normally used for smaller purchases such as inventory and operating costs.
Installment loans require that you pay a monthly installment that pays for the principal and interest.
Unlike line-of-credit and balloon loans, these loans can cover any business-related costs.
Fast Business Loans: To Apply or Not?
Let’s say your inventory is damaged. You still have customers waiting for their product. You need money fast.
In this situation, should you consider fast business loans? Yes and no.
Fast business loans can be a viable option if you know you can pay back the loan within a short time period— a month, maybe two tops.
Why? It boils down to one reason: interest. With short term business loans, interest rates may be around 3% per month. Yes, if you can pay the loan off in a month, this may be a doable rate.
But, let’s say you can’t pay off the loan in a year. That means you’re paying 3% per month for 12 months. Doing the math, that comes out to a 36% interest rate.
Nonetheless, as we’ve mentioned, if know you’ll have the funds to pay the loan back within a relatively short time and need the money ASAP, this may be something to speak with your financial advisor about.
How to Get the Loan Process Started
- Start the process as soon as you can. (Since the approval process can take weeks to months.)
- Work on improving your credit. (You can do this by not closing any existing cards and paying more in cash.)
- Prepare a plan on how you’ll use the money. (Will the loan cover business equipment? Office space?)
- Have all documents ready and available.
Speak With Your Financial Advisor
At the end of the day, go over business finances with your financial advisor. Not only can they inform you of your financial options (i.e. types of available loans, investment options…) but they can list the pros and cons of each.
It may also help your chances of getting your loan approved if you give a statement from your financial advisor to your potential lender.
What’s been your business loan experience? Leave a comment!