Every business needs a certain amount of capital to get off the starting block. For any entrepreneur of a start-up, knowing where from and how to get adequate funds is a crucial task. Banks are usually the first organization that most entrepreneurs approach to get funding for their venture. It’s difficult to get funding from banks since a lot of prerequisites need to be fulfilled, which very few entrepreneurs are able to meet. But the good news is that banks realize the potential of giving loans to small businesses, which is why their tough regulations are giving way to more entrepreneur-friendly rules. Some banks have even launched additional services and special programs to benefit small businesses. Several government financial institutions and their subsidiaries also offer loans to small businesses since these businesses offer employment to people, pay taxes to the government, which help support infrastructure and boost economy. If you too are planning to take loans for your small business but are yet in a dilemma about whether you should really seek such funding, here are some benefits that can help you decide in favor of getting such loans:
- Convenient and accessible
Being a bank customer for years, most people are already familiar with the use of ATM, debit card, and credit card. This familiarity together with the easy accessibility of banks (since they are often used to withdraw or deposit money) make them the prime choice of getting loans. You may even get loans against your credit cards, which usually doesn’t need additional documents and is processed online faster to help you get the funds in your bank account without waiting for long. You may even approach online lenders with a fast and easy application process that usually takes just a few minutes to fill and submit. Once your loan application is approved, the funds typically reach your account within 24 to 48 hours. With such easy access to funds complemented by a convenient process, getting business loans for small business is surely a great idea.
- Lower rates of interest
Unlike loan against credit cards or those given by private lending agencies, traditional lenders like banks or credit union offer loans at lower interest rates since their APRs are linked directly to federal funds rate . This refers to the minimum legal rate of interest permissible to be charged on commercial loans by the lenders (which usually changes over a certain period). However, such loans are difficult to get, especially when you are starting up and don’t have significant annual revenue or a sturdy credit to boast of. But you need not worry since online lenders can give you a viable alternative. With interest rates slightly higher than banks, these lenders make up for it with less stringent borrowing regulations and pretty faster disbursement, where the funds often reach your account within 24 hours of your loan being approved. It’s ideal to apply through various lenders and compare their offers to pick the best rate of interest that can be approved for you. Remember to assess the lenders on various parameters like minimum borrowing requirements, APR range, and borrowing limit, the speed of funding and loan repayment terms.
- Nonprofit sharing
Nonprofit financing (especially when you are looking for micro-lenders) can be a good way to get funds rather than seek loans from angel investors and venture capitalists who give you the money in exchange for sharing a specific amount of the profits, part ownership, and the right to have a say in decision making. Nonprofit lenders usually help small businesses that are likely to provide a favorable social and economic impact in their community, typically with job creation and employment. Most of these lenders offer smaller loans less than $50,000 (at low-interest rates) and often provide mentorship and advice (through workshops, business-related support, loan decisions, etc.) to the borrowers to empower their business and help them optimize the value of funds received. Being mission-driven, many of these nonprofit lenders develop strong relationships with the borrowers and help them deal with particular challenges before they snowball into big concerns. Thus, apart from funding, you get useful and timely advice from these mentors, which is ideal when you don’t have huge capital requirements.
- Tax Benefits
A certain proportion of the Interest on loans taken for your small business is usually deductible. When you use a certain part of your profits to repay the loan, the same would be exempted from tax, which again would bring some tax relief your way. In case you have taken a business loan from a relative, ensure the process conforms to the rules laid down by the IRS. You can also list any money you have paid to state or local tax authorities as an itemized deduction while claiming excise taxes, employment taxes and real estate taxes as deductible items in your tax returns. If you have paid money to tax professionals, lawyers, or consultants for getting business loans or other business purposes, they would qualify as deductions, as will any journals or books that were maintained and used for running the business. At present, you can claim business insurance premiums for a year or less to be deductible. Any surplus prepaid premiums could be claimed deductible during the subsequent years.
- Grow Your Business
Apart from traditional financing, there are various other avenues to get loans for small businesses. So, even when you don’t qualify for loans from banks or other traditional organizations, you can still get the funds you need. Such financing can help you to strengthen and expand your business by purchasing commercial real estate to run your business well, investing money to acquire machinery and equipment, buying out a business partner, meeting your working capital needs, training your personnel via workshops and other modes, refinancing your present business debt, or constructing a building (where 60% of the space is occupied by your business). In other words, all that was stalled due to funding constraints could now be handled just the way you want to, which would take your business to the next higher level in its growth trajectory.
When you can’t get conventional financing for your small business due to various reasons, which could be a collateral shortfall, existence of business for a short duration, the borrower belonging to a ‘high-risk’ business, possible business ownership changes (present or impending), or unpredictable financial performance over the past few years, you should look for small business loans from other avenues. From government-backed institutions to private and online lenders, there are various options that you need to compare and consider to take your pick based on what suits your capital requirements and the nature of business the best. So, go ahead and make an informed choice to get the necessary funds that will take your small business sailing ahead.
About the Author:
A finance Industry veteran, Charles Brown writes articles related to current financial trends and creates unique and useful content about business ownership for his company smallbusinessloans.co With a lot of knowledge and experience in this field, he has moved on to sharing his knowledge through writing.