Many people thought that business owners don’t run out of funds. Because they are selling products and services, they believe that it would be impossible to run out of cash. That may be true if you own a large corporation, but what if your business is small? Would that be possible?
Because of our unpredictable economy, there are times when our sales are high, and there are days when it’s not. Thus, the most affected in this whirlwind market is the small business owners. Nevertheless, it should not be the reason to close the business.
Nowadays, there are many establishments where you can get financial assistance. You can go to the merchant cash advance (MCA) or peer-to-peer lending firms. These business funding companies will give you quick cash. Furthermore, they don’t ask for credit history, making them ideal for those who have bad credit.
However, these are unsecured business loans. Meaning, you could pay for more than what you borrowed. This support can be helpful at first, but once you missed the deadline, the interest rate increases.
Nevertheless, you don’t need to choose between the two because there are other options for you. You can get financial assistance from a grant or small business loan provider.
Though these institutions help small-scale entrepreneurs, their pros and cons are different. In this post, you will learn the things you need to know about these financial institutions. Moreover, we will define the benefits and setbacks of these two services. So without further ado, let’s begin the discussion!
What You Need to Know About Small Business Loans
Entrepreneurs.com defined SBA loans as financial assistance offered by private lenders and guaranteed by the government agency. These institutions help both startups and established small businesses by giving them the funds that they need.
So how small business loans work? Like any business financing sources, SBA companies also have requirements that borrowers must comply. One of their requisites is credit history. It is one of the crucial factors they consider on whether or not they should grant you a loan. Therefore, if your credit score is low, chances are, they won’t approve your loan.
However, if you have bad credit, it doesn’t mean you’re not qualified to get the funds. To increase your chances of getting your loan approved, you must provide collateral. It serves as a guaranty to the small business financing company if the borrower fails to pay his debts. It involves taking away your belongings to pay for unpaid fees.
Lastly, you must have a good business plan. A good, sound enterprise concept is the one that is practical. Meaning, your plan should be able to pay your debts. If your idea is surreal, chances are, your application won’t be approved.
Once you’ve prepared these documents, you can now submit them to your chosen lending company. Upon the arrival of your request, the lender will start processing your application. The process will take 60 to 180 days, depending on the amount you want to borrow. Hence, if you need a low amount of cash, the process will be quicker.
When they approved your application, the interest rate may apply. Small business loan rates vary from one provider to another. Nonetheless, they all have ceiling limits.
For instance, if you borrowed $50,000 that you must pay within 7 years, your maximum interest rate would be 2.25%. There’s a reason why the Federal Government provided a ceiling rate. Because most loans don’t have interest rate limits, borrowers are having a difficult time in paying their debts.
With this particular credit, debtors can repay their loans, regardless of the amount they borrowed. It’s because the government wants to encourage budding entrepreneurs to continue what they have started. Moreover, they don’t want the SBA providers to get bankrupt because of unpaid fees. Thus, the state puts limits on interest rates. With this rule, both the lender and the debtor will benefit from this loan.
Nowadays, it’s easier to apply for government small business loans. You only need to visit the bank’s website and submit your requirements online. When they received your application, they will start processing your request. You just need to wait for their approval, which will be sent via email. If they approved your loan, you can decide on where you want to pick up the funds.
With this innovative process, getting this loan has never been easier.
Some Important Facts About Small Business Grants
According to BusinessDictionary.com, a small business grant is a subsidy, bounty, gift, or contribution provided by the government or organization. Because it is a grant, recipients don’t need to pay back the funds that they receive. They only need to submit the requirements asked by the guarantor.
There are numerous misconceptions about this financial assistance. Here are some of the common misunderstandings about small enterprise grants.
- Small business grants are given by the Federal Government. It is one of the prevalent misconceptions about this financing source. Because beneficiaries receive it without an exchange, people assume that it comes from the government.
It could be true; however, the state is not the sole provider of these funds. Private sectors can also give this financial help. Its purpose is to create jobs and to improve the economy.
- Anyone can get small business grants. Many people thought that anyone is eligible to get this gift. However, this contribution is given for a particular reason.
For instance, there are gifts exclusively for African-American women. Therefore, if you’re an African-American woman, then you’re qualified to get the grant. However, your nationality is not enough. You need to prove the provider that you own a small business. After all, this contribution is for small-scale enterprises.
- There is only one organization that grants these funds. The truth is that these are bestowed by different institutions. Some are from foundations while others are from corporations.
- You can get the funds in an instant. Yes, it is a grant, but it doesn’t mean that you can get it in a snap. In fact, you’ll get the money a year after you applied due to the detailed process for getting this award.
Like applying for a loan, you must submit certain requirements to the guarantor. Then, the provider will analyze your documents before he decides on whether or not he should give you the funds. Once he accepted your application, you have to wait for a year to get the grant.
However, this process varies, depending on the source of the subsidy. There are companies that ask for more requirements before they look at your application. Thus, you have to read and understand their rules and regulations before you send a request.
- There are enough small enterprise grants to give. Although there are several places to apply for this grant, only a few people can get it. There are two reasons for this. First is the number of applicants the guarantor accepts. Most of them give a grant to one person whom they think deserves for the subsidy.
The second reason is the number of times the guarantor gives a gift. There are organizations that provide this help every year, while there are some that give it every 5 years. Hence, you need to watch out for those companies that provide grants yearly. In that way, you have more chances to get the grant.
- Small business grants are for everyone. This misconception is somewhat related to the second myth. As mentioned earlier, there should be a reason to qualify for this reward.
For instance, if you want to get a small business grant, you need to have a company first. If it’s only a concept, then you’re not qualified to get this support. Thus, make sure you prove the guarantor that you own an existing store.
What Is the Best Option for Financing Your Business?
Now you know how small business loan and grant work, let’s weigh the pros and cons of these two sources. Let’s begin with the small business lending program. The best small business loan providers aim to help budding entrepreneurs by giving them low-interest rates. With this low charge, borrowers can repay their credits without a problem.
However, this funding source needs collateral and credit history. Hence, if you don’t have a good credit score or collateral, then you can’t get this loan.
As for the small business grant, you don’t need to repay the funds because it is given for free. However, you need to have an existing business before you can get the subsidy.
So what is the best option for your business? It depends on what you need. However, to make sure you get the right funding source, you must read reviews of small business loan providers. These blogs will tell you the things you need to know about these services.
Do you want to know why small business loans are a popular choice among entrepreneurs? Visit our website, CrowdReviews.com and read our reviews of small business loans to find out the answer.
Jeev Trika
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