Need Funding? Here's What to Know About Small Business Loans

Small businesses have more ups and downs than most, so even if you’ve used your own funds for a start-up, you’re likely to need external finance at some point.

SBA Loans

In order to encourage the growth of small business, the federal government has a scheme to encourage banks to lend money to them.

The major part of these loans are backed by the government so that if the business defaults on the loan, the lender won’t lose out.

This reduces the risk for the lender greatly, but the rules for these loans can be stringent. You’ll need to have sufficient equity in your business and may need to offer collateral as security. There is also a great deal of paperwork, and the loan process may take longer.

Conventional Loans

If you go for a conventional loan from a bank or other lender, then without the cushion of a government guarantee they will need more evidence of affordability and security.

A convincing business plan and responsible money management, as well as collateral and/or personal guarantees, will all be required.

Other options

Other options for banks and other lenders include using monies owned by customers as collateral for a loan; raising finance based on likely credit card receipts, if these are regular and reliable; or making loans to buy or lease specific equipment.

Other private lenders may offer quick cash with less obvious strings, but the interest rates for such loans are likely to be much higher.