A small business loan can be seen as a financial aid given by lenders to entrepreneurs in order to see their visions of owning businesses become a reality or to keep an already existing business running effectively. These loans, of course, come with repayment and interest plans. Applying for a business start up loan requires time, patience and energy, especially on the part of the entrepreneur both in the selection of the type of loan to go for and the application process itself.
There are different types of business loans available for entrepreneurs of small businesses and they have their distinct features. Nevertheless, most of these loans have similar eligibility and application requirements. General qualifications for the application of small business loans are;
- Provision of necessary financial and legal details
- Strong personal credit score
- Strong and convincing business plan
- Availability of collateral
Interesting Information on Small Business Loans
It is common knowledge that getting capital for a business or new resources for an existing one necessitates the need for a business loan. However, there are some unpopular facts about small business loans that are quite fundamental to the process of business loans application.
These facts will be highlighted in this article.
● Alternative Funding Sources Has Come to the Rescue
It is widely known that getting business loans from banks and other financial institutions can be tricky. This is because these institutions try to avoid giving out loans to startups. Statistics have shown that in the first year, 20% of small businesses fail, 30% of these businesses have failed by the second year, 50% of small businesses do not survive after the fifth year and 70% of small business entrepreneurs have failed by their tenth year of business.
In the above statistics lies one of the major factors that prevent banks from being forthcoming in the approval of loans for small businesses. Additionally, loans gotten from banks attract interest rates that are basically two or three points higher than the prime rate.
The interesting and relieving fact is that presently there are various alternative funding sources available and small business owners are at liberty to choose one that is more friendly and beneficial to them. These alternative sources are online and non-financial institution lenders and they have made applying and processing business loans faster and less cumbersome.
● Credit Score is a Major Determinant to Getting a Loan
The chance of you getting a business loan is majorly tied to your credit score. Most entrepreneurs, especially new ones underestimate the importance of high credit score in the application of business loans. Your credit score is the parameter that would be used by your lender to judge if you are trustworthy enough to be lent money. The more impressive your credit score is, the higher the chance of you getting the loan and vice versa (in some extreme cases, the application might be rejected because of low credit scores).
● Small Business Loans Grows the Economy
Giving assistance to small businesses, especially through funding is a great way to grow the economy of any country. A report has shown that the turnover of small and medium enterprises (SMEs) constitutes about 47% of the turnover of private sectors in the United Kingdom (UK). This means that there is a need for the creation of a stable environment and the availability of resources for these businesses to develop. A major way to do so is by rendering financial support, via the initiating of governmental backed business loans, as well as the government ensuring that financial institutions make loan processes less stringent. Therefore, because of the impact, small businesses have on the economic growth of a nation, funding of these businesses is a necessity.
● Loan Scams Have Gotten Rampant
Due to the rise of globalisation and the growth of online lending platforms, entrepreneurs now prefer taking loans via this means instead of going through banks because of the long and tedious process associated with the latter. Sadly, these online lending platforms have also increased the rate of online duping and scams. A research carried out by the Better Business Bureau (BBB), on scams targeted at consumers and businesses, shows that small businesses like individuals can be scammed. Also, from the research, it was gathered that small business entrepreneurs are of the opinion that the risks of falling prey to business scams is higher than it was three years ago.
With this information, it is therefore, pertinent the business owners are more vigilant and less desperate in the application of loans on online platforms and other sources.
● The Statistics for Women-Owned Small Business Loans are Low
In present times, women-owned small businesses are picking up pace in the business world. The information gotten from the Kauffman Foundation shows that 40% of new entrepreneurs in the United States (U.S.) are women and the number of new women-owned businesses is growing at double the rate of businesses owned by men. Nevertheless, this growth does not tally with the number of small business loans for female entrepreneurs.
Venture Capital’s publication on “Women don’t ask: an investigation of start-up financing and gender” showed that women in business are less likely to ask for outside funding compared to men. Those who actually seek funding, ask for $35,000 less than men do Additionally, only 2.2% of all venture capital in the U.S. goes to businesses owned by women.
Conclusively, there are so many challenges facing small businesses, the issue of funding is arguably the most critical of them all. Reports have shown that one of the biggest predicaments that small business entrepreneurs battle with is funds. While some need funds to kick start their business, others need it to ensure the smooth sailing of their business.
Nevertheless, beyond this, most entrepreneurs are unaware of some aspects of business loans and that is what the article is all about; highlighting and explaining interesting but unpopular facts about small business loans that would not only add to the body of knowledge but also aid in loan applications.