How To Get A Business Loan

You're reading How To Get A Business Loan, posted on Thursday, February 17th, 2011 at 8:00 am in Small Business, on BrainBloggers at the The Business World blog. More after the jump.

The old adage that it takes money to make money is very true; especially in these difficult economic times. Picking a first-rate business proposal to full fruition, or even retaining a present one going will take some financial assistance. That assistance can be gained via a small business loan.

What is a Small Business?

To first determine what is a small business loan, a corporation will have to first see whether it qualifies under the guidelines of a small business. The United States government defines an organization as a legal for profit concern or entity that contributes to the economy without being dominant in its field or on a national basis. There are two leading attributes that the North American Industry Classification System (NAICS) employs to outline a small business and they are number of employee number and annual income. These two criteria vary depending on the industry sector, also explained under the NAICS.

What is a small business loan?

In its most straightforward form a business loan is capital lent to a firm rather than to any individual for the purposes of starting, preserving, or modernizing said corporation. Business loans are also generally known as Commercial loans and differ from consumer and personal in many respects.

The specific amount to be borrowed can be determined by multiple issues, the most typical being the position of the business. If the loan is to initiate a small business then a solid business plan must be presented and external assets be offered to the lender. Should the small business already exist then recent financial statements in addition to any security the company itself might be able to offer for the loan can establish the lending limits. Yet another, less favorable alternative can be an unsecured loan. Most of these loans frequently have lower lending amounts and higher rates of interest as a consequence of higher risk being taken by the lending institution.

Advantages

The key reasons behind getting an enterprise loan is the ready cash on hand to begin a lucrative endeavor, or to invest within the organization. The money can produce the breathing room desired from other financial obligations, or facilitate restructuring, modernizing, and development. Depending upon the interest rate being charged on the loan, the cash infusion can create and/or boost the income past the payments safe-guarding the financial future of the business.

Disadvantages

The downsides for business loans start at the bank door.
1. Collateral: If the business is new then security for the loan may have to come from personal possessions.
2. Approval: Irrespective of how fantastic the business plan or the reason for the loan the lender will generally complete its own due diligence into the company type or the credit history of the company and its principals. This might result in short-term chances for which the loan may be needed to pass.
3. Loan terms: These can cover anything from unfavorable interest levels, excessive penalties for past due charges to set changes inside the business itself like arranged wages or staff reductions.

Read here for more information on: Government Debt Consolidation Loans.