How to Qualify for a Small Business Loan and Fund Your Big Idea
These small business loans vary from $500 to $5.5 million, which provide a range of financial support to entrepreneurs.
By Katelyn Chef March 18, 2021
If the past year has proven anything, it’s that small businesses are resilient to fluctuating markets. In the past, you’ve applied for student loans, car loans, and other smart financial responsibilities as ways to make your way through life. However, as an entrepreneur, have you considered applying for a small business loan to sustain your business in this difficult time?
If not, now may be the time to do so. Small business loans (SBA) aim to provide capital to small businesses just starting. These types of loans are supported by the government, deeming them less of a gamble, and Colleen McCreary, chief people officer of Credit Karma, advocates that these are a good option. “SBA loans offer competitive terms, lower down payment requirements, and resources that can help you run your small business,” she explains.ADVERTISING
Here’s what you need to know about small business loans and how to apply for one, according to McCreary.
When to Apply
Aside from securing capital for your new business, one of the main benefits of an SBA loan is that you can conceivably secure funding from an SBA lender when other banks have denied your requests. According to McCreary, you can qualify rates similar to equivalent non-SBA loans, too. Of course, there are other factors to take into consideration when applying for loans like these. “SBA loans have strict qualifying requirements,” shares McCreary. “For example, if you’re a startup, you should have experience in the type of business you want to start. And for a new business, you should have cash on hand or business assets to the tune of around $1 for every $3 you want to borrow. Some SBA loans have prepayment penalties.”
That means it’s essential to have a clear financial plan for your business already in place. “The smaller your loan, the higher your interest rate might be,” she continues. “The SBA allows lenders to charge the prime rate plus 2.25 percent for loans of more than $50,000 maturing in less than seven years. However, for loans of $25,000 or less maturing in less than seven years, the cap is the prime rate plus 4.25 percent.”