Looking funds for your business, there are many options in the market today to offer assistance. Understanding the financial requirements of small-scale and entrepreneurial setup, the financial market has evolved and developed multiple options. Depending on your requirement limit, type of financial need, credit scores, and prospective business plan, you should choose a balanced combination of debt-equity financial resources. There are many financial institutions, banks the and government monetary reforms to promote and support small-scale businesses. To understand their requirements and processes, you can visit their page here. You can also compare various financial options based upon their commitment interest rates offered and other advantages in a small business promotional site www.smallbiztrends.com.
Traditionally and still the most reliable source of capital is a bank loan. Bank borrowing can be a good option for a startup business or their initial financial requirements, provided they can qualify the rigid approval criteria. These loans are suitable for acquiring machinery, equipment, office set up, real estate and office space requirements. Certain basic evaluations done by the bank include personal credit score which is considered okay if it is above 700 points. Collateral security is another major requirement of a bank loan since it secures their funds in case the borrower defaults. Lastly and an optional check is the past work history as well as future business plan to analyze company’s expected performance in years to come. Apart from that a list of documents are also needed to be submitted which may include a business plan, financial statements and tax returns for past 3 years, information about nature of work and client base.
Once an entrepreneur qualifies, then term loan for a defined period is sanctioned to the borrower with the underlying requirement to make monthly repayment along with the applicable interest rate. Interest rates are derived based upon current market index rate, perceived credit risk, and term of the loan.
Other options of funding available in the financial market are:
1. The line of credit loan: These are short-term loans offered at the lowest rate of interest a bank can offer. These are generally for a period of one year and can be extended by paying a nominal annual fee. The loan amount extends the cash in company’s account to the upper limit of a loan contract. These loans are suitable to meet up the working capital requirements.
2. SBA Loan: Government does not directly get involved in the lending process, but regulate a consortium of participating banks, financial institution, non-bank lenders and credit unions. They motivate small-scale business borrowing by setting up interest rate cap. SBA also offers loan guarantee which is a credit insurance for the startup companies. These loans are used for buying land and machinery for initial setup, working capital requirement, acquisition of another company as an expansion plan and basic needs of starting up the business.
3. Installment loans: The company receives the full amount into their account on the day the contract is signed. Then the interest is calculated from the date of sanction to the end date of loan limit. Then these loans are paid back with an equal monthly installment of principal and interest rate applicable. Usually, these loans are used for business cycle requirements.
4. Unsecured loans: If the lender is satisfied with your financial performance and payment patterns, they can offer you unsecured loans, which does not have any collateral commitment attached to it. But it is usually tough to qualify for such loans in the initial period of the business.