With the growing need for small business loans across the United States, the need for their awareness has increased as well. Small business owners now research deeper into the type of loan they apply for and the requirements they need to meet for it. As such, there are certain important questions that arise again and again in the loan acquisition process. Let us take a look at some of them:
Q: What Is The Most Important Requirement For Lenders?
The answer varies from lender to lender, and from loan to loan but generally, a good business plan can sway any lender in your favor. Every lender’s priority is getting the principal amount repaid with interest, and a solid business plan is a good way to ensure them of that. A good business plan should include:
- Detailed marketing efforts
- Financial projections for 3 to 5 years
- Marketing environment analysis
- Competitor analysis
Other than a business plan, some banks still put a lot of faith in credit scores while alternative lenders judge an applicant more based on revenue generation history throughout their business.
Q: Are Alternative Loans Better Than Conventional Bank Loans?
It depends on what kind of loan you are looking for. The main difference lies in the loan rate and speed of financing, which may help you decide how to choose a small business loan. Conventional bank loans offer lower interest rates but take longer to finance your business.
This is because of the strict vetting process undertaken by banks ever since the financial crisis of 2008, which is also responsible for a higher rejection rate for these types of loans. Alternative lenders, on the other hand, charge a higher interest on loans in exchange for faster funding. It is important to note that alternative lenders also have a higher acceptance percentage for applicants.
Small business owners are always more cautious of alternative lenders due to fear of being scammed. However, online platforms such as Orumfy are designed to address this concern by ensuring ease and transparency in the lending process. Lenders and borrowers can link with each other through the platform and complete the lending process without any hassle.
Q: What are SBA loans?
The government guarantees small Business Administration (SBA) loans. SBA itself does not give out loans but encourages banks to lend by guaranteeing a portion of the loan. In this way, if the borrower defaults, the lender would still receive the portion that was guaranteed by SBA. There are 3 SBA loans that are most popular:
- SBA 7(a) loan program is the most common type of loan which can be used for most typical business purposes.1
- The CDC/504 loan program is designed to provide financing for major fixed assets like real estate and equipment2.
- SBA Microloan program
Q: What Is Collateral?
Collateral is an asset that is given to the lender to secure a loan. The collateral may be equipment, land or even invoices for the borrower. If the borrower defaults then the lender can keep the collateral to cut his losses and as a source of repayment. If the borrower pays off the debt, however, then the asset will no longer be a collateral and given back to the borrower.
A loan that pledges some collateral to the lender is called a secured loan while a loan with no collateral given is an unsecured loan. An unsecured loan will have a much higher loan rate, however, than a secured loan due to the absence of a collateral.
Regardless of the number of questions, you have in mind, it is always best that you consult the lenders and be sure of your choice and make a well-informed decision accordingly.