Small businesses are often hard to start. It requires a lot of dedication, time, and energy to get it up and run. It also needs a lot of capital. The average cost for a startup is estimated to be around $180,000 for one year. That’s a lot of money!
However, many business owners can start their first company without even having this money in their bank account. Instead, they do it by borrowing money through a business loan.
What are Business Loans?
A business loan is a type of financing that helps small businesses get the capital to grow and expand their operations. The funds can be used for various purposes, such as hiring new employees, purchasing inventory, or expanding into new markets.
There are many different types of business loans available, each with its own set of terms. Here are some of them:
The Small Business Administration (SBA) is a government agency that provides loans to small businesses. These loans are typically made by banks or other financial institutions and are guaranteed by the SBA. If the borrower defaults on the loan, the SBA will pay back the lender.
SBA loans are divided into two categories: 7(a) loans and 504 loans. The 7(a) loan program is the SBA’s most popular loan program. It offers a variety of loan types, such as term loans, lines of credit, and working capital loans.
The 504 loan program provides long-term, fixed-rate financing for major projects, such as purchasing real estate or equipment.
Bank loans are another type of financing available to small businesses. They are typically made by commercial banks, credit unions, and community banks.
There are two types of bank loans, secured and unsecured loans. Secured loans are backed by collateral, such as a home or a vehicle. If the borrower defaults on the loan, the bank can seize the collateral to repay the debt.
Unsecured loans, on the other hand, are not backed by collateral. Therefore, if the borrower defaults on the loan, the bank cannot seize any assets to repay the debt.
Credit card loans are a type of unsecured loan that allows business owners to borrow money using their personal or business credit cards. The funds can be used for various purposes, such as funding a new product launch or covering unexpected expenses.
The main advantage of credit card loans is that they have relatively low-interest rates. The downside is that they can be challenging to qualify for, and the repayment terms are often short.
Merchant Cash Advance
A merchant cash advance (MCA) is financing that allows business owners to borrow money against their future sales. The funds can be used for various purposes, such as funding a new product launch or covering unexpected expenses.
MCA loans are typically repaid through a percentage of the business’s daily credit card sales. The repayment terms are often very short, ranging from six to 18 months.
These different types of business loans are an excellent way for small businesses to get the capital they need to grow and expand their operations. But not everyone can get approved for it. Here are some reasons you might get rejected and what you can do about it.
Having a criminal history is a sure way to get your loan rejected. Lenders are hesitant to lend money to people with a history of criminal activity. Therefore, if you have a criminal record, it’s essential to disclose this information to the lender upfront.
However, some crimes are easier to negotiate around others. For example, a DUI is not as severe as a felony. And if you’ve been arrested but not convicted, that’s even better. All you need is a proficient DUI lawyer to present your case in the best light. Once that’s all good, you can get a loan right after. You can also choose to wait for a couple of years after your DUI history.
Bad Credit Score
Another reason you might get rejected for a business loan is because of your bad credit score. A low credit score indicates to lenders that you’re a
The best thing you can do is be upfront about your criminal history and try to negotiate with the lender. You can also get a co-signer with a good credit score to increase your chances of getting approved for the loan.
If you don’t have any collateral to offer, you might get rejected for a loan. Lenders want to know that they can seize your assets if you default on the loan. So without collateral, they see you as a high-risk borrower.
One way to overcome this is to get a co-signer with good credit who can offer collateral. This will increase your chances of getting approved for the loan.
You can also try to negotiate with the lender and offer other forms of collateral, such as a personal guarantee. This is where you agree to repay the loan if the business defaults on it personally.
Small businesses have several options when it comes to securing a business loan. You might get rejected for a loan because of your criminal history or bad credit score. But don’t worry, there are ways to overcome these obstacles. By following the tips above, you should be on your way to getting a business loan.