For any individual who owns a small business, a shared dream is to expand their businesses and improve their production significantly. Of course, this is to increase profits for the industry, but the general goal would be to grow continuously. However, the problem that comes with this dream is that these small businesses face many expenses, meaning that they need to spend large amounts of money on renting properties, buying vehicles and equipment, and much more.
In simpler terms, business funding happens in the present time for the small business to grow into a competitive and respectable company. These business loans come from multiple sources such as banks, small business administrations, online lenders, and credit cards. Nevertheless, these sources tend to yield dismal results simply because of the accompanying agreements such as credit effects and annual fees.
Another option available for possible loans is loaning from an actual business, and this seems to be the more favourable option for several reasons. Especially in the digital age, digital business deals involving loans have become much more common. Before knowing these reasons, it would be best to know what the average business loan is and what it entails with its different sources.
A business loan, also known as a term loan, is an agreement between a lender and a borrower to lend immediate cash to the other. First, of course, the borrower must pay the lender back, but this happens through instalments or amounts of money given over time. It is also essential for lenders to be paid an interest rate as an incentive for lending their money to the borrower.
This practice is much more common than one would think, and many people may find themselves practising this sort of business unconsciously. A good analogy to this practice would be the student loan. Wherein a family, may not pay for their child’s school fees. Parents would then loan money to pay for the costs, and they would pay the lender in smaller amounts over some time to fully pay for the expense.
On the side of businesses, they make more considerable expenses such as purchasing appliances and vehicles. These strengthen the growth of the company. Again, this is a beneficial practice, but it comes at the cost of interest rates and other possible fees that the lender could propose.
Although it may seem beneficial only to the lender, business loans have some positive benefits for the borrower as well. Prompt funding is a benefit for those who want a loan for their business immediately, and in case the loan is paid off early, one may also qualify for pre-payment incentives. Waiving the remaining interest rates is also possible by paying the loan off earlier than usual. As a bonus for borrowers, building good credit leading to loyalty benefits is possible if the borrower diligently follows the processes and payments of the loan.
Interest rates are the most significant part of loaning anything out of a business or bank, and this is essentially a form of compensation for the lender’s effort. However, interest rates vary from the typical 4% or 6% rate due to the borrower’s cash flow, credit history, and other financial factors.
One may decide between two different types of loans which are the fixed-rate loan and the variable-rate loan. As the term implies, fixed-rate loans have regular interest rates. Throughout the life of the loan, the rate will stay the same. As for variable-rate loans, the base interest rates go up and down. However, these depend on the base interest rate at the time.
Loaning From Who?
The simple answer to this question would be the average bank or the small business administration. However, a big reason for loaning money is because a business would need the money immediately. Any business owner would understand the aspect of working to meet tight deadlines and the possible delays that come along with them. Sometimes, money is lacking, and businesses are badly in need of a loan, and they would request an immediate loan from a bank. Banking institutions may not fulfil these requests because approving and receiving loans would take a few days.
Thankfully, there are businesses designed for this exact purpose, fulfilling the request for a loan at an exponentially faster rate than others. Companies such as Idea Financial have applications that take only two minutes, and these offers are approved almost immediately. Amazingly, these businesses may accept, support and give these loans on the same day.
Especially if a business needs money as soon as possible, digital loaning is the best way to get around extended periods where one needs to wait only for approval.
Before applying for any loan to a business, the business involved must meet the qualifications:
- The company needs to have been in operation for two years, showing its viability and helps provide information on its financial history.
- $ 15,000 of revenue must be made by the company as this shows that they can pay for loans.
- Borrowers must meet a credit score of 650, which indicates that the business has good credit and implies that they would take these possible loans seriously.
It is also important to remember that sole proprietorship companies may have trouble with digital lenders as many do not provide loans for non-profit organizations.
Business loans are not simply a tool to purchase different items for one’s benefit, but they can improve the company through other aspects. For example, properties in various locations, state-of-the-art technology and equipment, and vehicles are visual evidence of the business’s growth.
Nevertheless, modern times have embraced speed and convenience as the essential part of any business. Consequently, this view has reached the amount of business loaning, and companies prefer to receive loans as soon as possible, so one does not waste time on any delay. That is why businesses now offer same-day results, which will give the borrower what they need and much more.