To start a business, individual entrepreneurs often take regular non-purpose personal loans and use them for business purposes. In this case, the advantages are obvious: you will be able to get money quickly and without collateral, you will not need to collect an impressive package of documents at the bank and wait for the bank’s specialists to analyze them.
For newcomers in business who have not worked even for 3 months, this way of getting money for the development of business may be the only one. Banks, unfortunately, refuse to lend to startups. But do not expect to get large sums without collateral.
Loans from a microfinance organization
Surely you have heard of payday loans Nebraska. Such loans are suitable for small and medium-sized businesses as they are small-dollar and short-term.
In addition to private microfinance organizations, there are state ones that provide loans for businesses from the state budget. These are various funds for the support and development of small businesses, funds for lending to small businesses, microfinance centers.
You can get no more than $1,000 from a microfinance organization and, as a rule, a loan is issued for a period of no more than a year. The interest rate is in each case. Microfinance organizations ask for a minimum of information, but an APR is higher. Each payday lender has its own requirements and typically they are relaxed.
Before choosing an organization to apply for a loan, make sure it has the license to carry out microfinance activities.
Payday loans are convenient to use if you urgently need funds for a short period and there is no time to wait for a bank loan approval. But when a businessman needs a more significant amount for the implementation of a project, the purchase of expensive equipment or its own office, then lending programs for small and medium-sized businesses in banks should be considered.
Can I get a business loan from a bank?
Now almost all large banks offer loans to small and medium-sized businesses on favorable terms. The loan amount can range from $1,000 to $1 million, and the main advantage is the lowered interest rate. But it is not so easy to get approved for a bank loan for business development.
First of all, large loans are approved only to companies that have worked in the market for at least six months and are dealing with a profit. In addition, banks are actively studying credit history, so it should be perfect.
Secondly, to get a bank loan for business development, you will definitely need collateral and guarantors. Various property can act as collateral, depending on the purpose of the loan: real estate, car, goods, equipment, personal property of the entrepreneur. If your collateral is not enough to secure the loan, then the guarantee fund can also act as a guarantor. We will discuss this a bit later.
Third, be prepared to provide the bank with all the necessary documents. The specific list needs to be clarified in each bank, it looks like this:
- constituent documents;
- tax declaration;
- accounting statements;
- detailed business plan.
Then you will need to wait a while while the bank analyzes your documents and makes a loan decision. You may need to wait from 3 to 14 days.
Getting a loan through guarantee funds
If the bank denies you a loan due to insufficient collateral under the loan agreement, that is, your property is not enough for collateral, then a guarantee fund can act as a guarantor. Guarantee funds can also be funds for supporting small and medium-sized businesses and centers for the development of entrepreneurship in the regions.
Of course, funds provide a guarantee for a fee. On average, the fund’s remuneration is up to 2.5% per annum of the surety amount. You will have to pay this amount to the fund immediately upon concluding the contract.
To get a loan, you can apply either directly to the guarantee fund or get a loan through a bank that cooperates with the fund under the surety program. The procedure for considering the application and the documents required are similar, but the loan agreement will be three-sided: you, the bank, and the guarantee fund.