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5 Things You Need to Know About Small Business Loans

Small Business loans and 5 things you need to know about them:

So, you’ve been running your business for some time now and things are growing much faster than you expected. Guess what? It happens to every small business owner in America. Maybe you need money to cover account receivables or purchase more inventory or hire more employees to handle the workload. Whatever business-related expense you have, waiting a month or two for the funds isn’t going to cut it, you must act quickly in order to keep up with the demand.

Enter unsecured small business loans.

These loans require very minimal paperwork. What do I mean by minimal? All you need upfront to get approved is a signed application and the last 3 months business bank statements and within 24 hours of your approval being issued you can be funded. That’s right, it's that fast.

The reason why? Well for starters these lenders are not looking to tie up all your personal and business assets, like the banks. They are not going to take months to send out appraisers and ask for mountains of paperwork for a short-term capital need of yours. These lenders can simply look at the last 3 months business bank statements and safely determine how much based off your statements can your business afford to dish out for a loan payment. Credit scores are not the main deciding factor but rather the industry you operate in and bank balances are.

The 10% Rule:

On average 10% of reported annual revenues on your tax return or a sales run rate for the year is a safe amount that your business could get approved for. That 10% isn’t a hard number but rather a rough estimate of what you might expect to get approved for. So, a small business doing $1MM a year in gross sales would probably get approved for $100k. Now if the bank balances are strong and you have strong credit it can increase to 15% but the opposite is true as well. If your credit score is weak and balances are not the healthiest it can drop to 5%. Regardless, I want you to have an honest idea of what to expect.

Term lengths: Short term working capital loans are typically anywhere from 6-18 months. The stronger the deal is, the longer the term. The riskier the deal the shorter the term. Many business owners like to get the longest term possible so that they can receive the lowest payments and payoff the loan early to take advantage of pre-pay discounts! Not always does it make sense to get the longest term. Sometimes you just need a bridge loan to get you threw a few months while payments come in or projects are underway.

Cost of Funds: The cost of the money will largely be determined by what type of risk you carry as a borrower. Do you have multiple late payments on your credit and poor cash flow? Or do you have great cash flow and great credit? Rate factors are issued by underwriters after analyzing your deal. 6-month terms typically have a 1.06-1.09 rate factor. Which means each dollar you borrow will cost you 6 to 9 cents on the dollar. 18-month terms will have rate factors of 1.16- 1.20, which means each dollar you borrow will cost you 16 to 20 cents on the dollar. Why is this a little more expensive than conventional business loans? SPEED, because all that is needed is an application and bank statements to get approved and you can get up to $150k within 24 hours of an approval being issued deposited into your business account. The ability to have access to cash quickly makes you a threat to your competition. After all, cash flow is king.

Documentation required: As mentioned earlier, very minimal paperwork is going to be needed. An application and 3 months business bank statements (all pages) is all that is needed to get approved. Once approved a signed agreement and a copy of your most recent business tax return along with a copy of your driver's license and a voided business check is needed to fund. That’s it. If you are seeking more than $150k additional financial paperwork will need to be provided. Such as P&L and Balance Sheets.

Minimum Requirements: The bare minimum to qualify for an unsecured business loan are as follows:

  • 6 months’ time in business

  • Monthly revenues of at least $8k per month

  • FICO score of at least 500 or higher

If you can check off those 3 items, you can get approved.

I hope that the information provided helps you make a better decision when the time comes to get an unsecured working capital loan. If you have any additional questions please don’t hesitate to reach out to us. You can be approved for a loan within 24 hours, giving you access to working capital right when you need it!

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