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Solo's blog provides the resources that microbusinesses, solopreneurs, freelancers, and other super-small businesses need to start, operate, and grow.

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In this article:\nWhen should I get a loan for my small business?\nQuestions to ask before getting a business loan\nSmall business loan requirements\nTypes of small business loans available\nHow to get a small business loan\nGetting a business loan is a common process for many small businesses as they are starting up or looking to grow. Sometimes you just don’t have the capital to take your business to the next level, so you need a little help along the way. \nBefore getting a loan for your small business, make sure that your plan for return is solid and that you will be able to pay back the loan and keep your business going strong. \nWhen should I get a loan for my small business?\nTo determine when you should get a loan for your business, you need to understand the different types of loans that are available and have a purpose for your loan. \nGenerally, you want to acquire a business loan \nbefore\n you are in dire need of one, but close to the time that you are actually ready to spend the money. \nYou shouldn’t ever get a business loan as a last-ditch effort to save your company or on an impulse. It needs to be well-thought-out and serve a purpose to help grow your business. \nWe’ll guide you through some questions to ask before getting a loan, the basic loan requirements you’ll need, the types of loans available to you, and, when you’re ready, how to get your small business loan. \nQuestions to ask before applying for a business loan\nBefore you get a small business loan, there are several questions you should ask yourself to determine what your goals are for the loan and whether or not a loan is the best decision for your business right now. \nWhat do I need the money for?\nHow much money do I need?\nWhat does my credit history look like?\nHow soon do I need the funds?\nYou should also come up with a list of questions to ask the lender so that you know exactly what is required of you when it comes to acquiring the loan and paying it back. Some questions to get you started:\nWill you lend to businesses in my industry?\nWhat are the interest rates of the loan?\nAre there any other fees associated with the loan?\nHow long does the loan application process take?\nWhat will my payment schedule be?\nWhen is my first payment due?\nHow do I make payments for my loan?\nAre you rated well with the BBB? What is your rating?\nCan I speak to some of your past and current customers?\nDo you report payment history to the appropriate credit bureaus?\nAre there any penalties for early loan payoff?\nThese questions will get you started in determining whether or not you need a loan and will be able to qualify for one, as well as help you find the best possible lender for your situation.\n\nSmall business loan requirements\nIt will help you out immensely to know what the requirements of a business loan are before you apply for one. Set yourself up for success by making sure that you can qualify for a small business loan. \nHere are some of the basic requirements for business loans. Keep in mind that certain lenders may have different requirements and these are just a general guide. \nThe amount you want to borrow\nThe purpose of the loan\nPersonal credit score\nBusiness credit score\nHow long your business has been in operation\nA solid business plan\nYour industry\nType of business\nLicenses and permits that authenticate your business\nEmployer identification number\nCopy of your commercial license\nProof of collateral you wish to use\nAnnual revenue and profits for your business\nBank statements\nBalance sheet\nPersonal tax returns\nBusiness tax returns\nDisclosure of all debts\nAccounts payable and accounts receivable aging reports\nOwnership and affiliations of the business\nLegal contracts and agreements of the business\nNot all lenders will require every piece of information that we’ve listed here and some may have a few more items, but this will give you a good start to be prepared for the information that your lenders may ask for. \nBest types of small business loans: how to choose\nThere are several different types of small business loans. Carefully considering the questions we listed above and understanding the purpose of your loan will help you to determine the best type of loan for your business. \nHere are some of the most common types of loans that small businesses use. \nLines of credit\nBusiness lines of credits are very similar to credit cards in that they are open-ended and have specific limits. With a line of credit, you can withdraw funds, repay them, and then pull out more funds later as needed. \nCommon reasons for business lines of credit include managing cash flow gaps, increasing working capital, and purchasing inventory. \nThe best part about lines of credit is that you only pay interest on the money that you spend. Even if you are approved for a large amount, you only pay interest on the portion that you actually use. \nTerm loans\nTerm loans are the type of loan that most borrowers think of when they hear the term “business loan.” You are given a sum of money which you need to pay back, with interest, at regular intervals over a given period of time. \nThe thing to be aware of with term loans is that they need to be repaid promptly, so they aren’t a good choice if you need working capital. Term loans are best when you have a large purchase coming up (real estate or equipment) and you’re going to use all of the loaned funds towards that business expense right away. \nEquipment financing\nAs you can imagine, equipment financing is used to purchase business equipment like machinery or vehicles. The equipment you purchase with the loan is used to help secure the loan. \nsmall business owner with coffee roasting equipment\nEquipment loans generally have low interest rates and most allow you to finance between 80% and 100% of the cost. \nInvoice factoring\nInvoice factoring is the process by which businesses sell their unpaid invoices to “factoring” companies. These companies will give a cash advance that is generally between 70% and 100% of the invoice, and then will collect their payment when the customer pays the invoice. \nIf you have a lot of unpaid invoices that are hurting cash flow, this type of financing can be helpful. \nMerchant cash advance\nA merchant cash advance provides business owners with funds in exchange for a percentage of their income over a certain period of time. Payments are made daily as a percentage of the customer transactions that day. \nThese types of loans typically have high interest rates since they take a percentage of your sales, so we only recommend using these as a last resort. \nHow to get a small business loan\nNow that you’ve determined how much you need to borrow and learned what types of loan may be the most beneficial to your business, it’s time to put your plan into action. \nFollow these steps to acquire your small business loan. \nDetermine which type of loan you need\nBefore you can apply for a loan, you need to determine what type of loan your business needs. Do your research to figure out which types of loans suit the needs of your business best and then find a lender that can deliver. \nFind the best lender for your business\nThere are several different types of lenders out there who want to help your business succeed (and make some money in the process). Determine the type of loan you want will help you narrow down your list of lenders that you can choose from. \nCommon types of lenders that small businesses go to:\nCommercial banks\nLocal community banks\nDirect online lenders\nPeer-to-peer lending sites\nBank lenders with SBA guarantees\nafrican american couple meeting with banker for small business loan\nDetermine if you are eligible for a small business loan\nCarefully examine your personal and business credit history, revenue history, assets, and total debts. Lenders make judgments based on all of these things and how high of a risk it will be to give you a loan. \nAnswering some of these questions can help you to decide if a lender will make the judgment call that you want to hear:\nDo you make payments on loans on time?\nDo you have any outstanding debts that haven’t been paid?\nDo you have valuable assets that can stand as collateral?\nHow long have you been in business?\nDo you have any venture capital investors, strategic investors, or angel investors? (Having investors looks good to lenders)\nAre your financial statements in order?\nGet your financial statements together\nLeading on that last question, you should definitely get your financial statements in order before applying for a small business loan. Your lender will ask for these, so it’s vital to prepare yourself ahead of time and be well aware of how your finances look. \nLenders will carefully review your statements to analyze your cash flow, margins, accounts payable and receivable, and more. Be prepared for questions about your records, and keep your accountant involved in the process. \nGather detailed information and documentation for your loan application\nWe mentioned a list earlier of basic requirements that you should have prepared before applying for a business loan. Make sure you have all of those details together in order to make the application process go as smoothly as possible. \nResearch your lender and loan type beforehand as well to see if there are any additional, non-typical requirements by the lender. \nIt takes time to get statements and records together, so give yourself the time you need and don’t postpone the application process by delaying this key step. \nKnow how much you want to borrow\nYou can’t ask for a loan without knowing how much you need to borrow. The lender will want to know the amount you wish to borrow and how you plan to use the funds. \nIt can be good to ask for a little more than you initially planned for just in case you hit any hurdles while spending the funds.  \nDetermine the security options for the loan\nLenders just want to make sure they are going to get their money back (with interest), so they will have different security options to improve the odds of that happening. \nThis is often coined as “collateral” but may simply be a security interest to the lender on company assets. \nAnother thing that lenders will do to ensure this security on their funds is to get a personal guarantee from the business owner. It’s usually a good idea to avoid this when possible because this puts the owner’s \npersonal\n assets at risk as well as the business’s assets. \nmale hands signing personal guarantee for small business loan\nAnalyze the terms of the loan\nDon’t just blindly accept any loan because you need the money. You need to make sure the terms of the loan make sense for your business and that you can actually deliver on them.\nKey terms you should review with your lender and accountant:\nWhat is the interest rate on the loan and can it vary over time?\nHow often can you pay the interest?\nWhen is the principal interest due or is it spread over the lifetime of the loan?\nWhat’s the loan origination fee?\nAre there any other costs or fees associated with the loan?\nAre there limits on how the funds can be spent?\nAre there any security requirements?\nCan the loan be paid off early? Is there a penalty for that?\nReview your online presence\nLenders are going to perform their due diligence to ensure that your business is going to be a valuable investment for them. To ensure that your business is reputable and professional, they will likely check to see what your online presence is like. \nThis will include your website, social profiles, any online reviews your business has, and even the business owner’s personal accounts and social posts. \nIf there’s anything that you think might prevent you from getting a loan, make improvements and updates before you apply.\nApply for the loan\nOnce you are familiar with the process and know what type of loan you want, it’s time to put in your application. Depending on the type of loan you are getting, the waiting period for a business loan can be anywhere from 24 hours to 6 months (this time frame should be disclosed to you when you talk to the lender). 

Guide to small business loans: How to apply, best types, and tips

In this article:\nWhat is cash flow and why is it often an issue for small businesses?\n6 common cash flow issues and how to solve them:\nMany businesses don’t make it past the first couple of years due to cash flow problems. Whether they are spending more than they are bringing in or simply can’t keep up with payments, it becomes a real problem for business owners everywhere. \nIf your business is having cash flow problems, it may be wise to hire a financial consultant or CPA to help you analyze the situation. We’ll also give you some recommendations for solving common cash flow problems that businesses face. \nWhat is cash flow?\nCash flow is the term that refers to how the money moves in and out of your business. (And the term “cash” here doesn’t necessarily refer to hard currency or paper bills… it just means “funds.”) It isn’t just about profits, but all aspects of the funds that come in and how that money gets spent. \nIf you are coming up short on payments for necessary business obligations, can’t afford to grow with customer demands, or find that you’re spending more money than you’re bringing in, you have a cash flow problem. \n6 common cash flow problems small business face and how to solve them\nIt’s good to address cash flow problems as soon as possible so you can take adequate steps to solve them and keep your business running smoothly. Take a look at these common problems and determine if your business needs to work on them. \nOverestimating future profits\nUnpaid invoices from clients/customers\nUnorganized books\nSpending too much\nScaling too quickly\nNot maintaining cash reserves\nLet’s go over each and discuss ways to address them.\n1. Overestimating future profits\nMany business owners are overly optimistic about their business and how much they are going to make, especially when starting out. While optimism is a healthy trait to have, too much of it can hurt your business. \nOverestimating future profits can hurt your cash flow in numerous ways. You may make justifications for spending too soon or purchasing too much inventory because you are anticipating a good sales month. It’s important to maintain realistic expectations, and even underestimate so you don’t find yourself in trouble later on. \nHow to solve it:\nKeep yourself from overestimating future profits by using a solid method for sales forecasting. Use your history of sales to set expectations for each month, or if your business is relatively new, use real data from other businesses in your industry, and be realistic about how much of that share your new business is likely to get.\nNot sure how to do this on your own? Talk to a financial professional to get assistance in creating an accurate sales forecast. You should have a somewhat clear idea about sales forecasting if you did \nproper research before starting your own business\n.\n2. Unpaid invoices from clients/customers\nPerhaps the largest cash flow issue for most businesses is clients that haven’t paid their invoices. Lack of payment means less money for your business. \nThis can happen for a number of reasons: your client is having similar cash flow problems, they spent too much and suddenly can’t afford the service, they forget about the invoice, or maybe they simply don’t want to pay. \nIt’s important to keep track of and address unpaid invoices right away so they don’t become a large problem for you later on. \nHow to solve it:\nThere are a few ways you can resolve your unpaid invoice problems with customers:\nRequire a deposit up front\nSend out regular reminders when invoices go out (email and text reminders with a link to a payment option are great)\nHire a debt collector to assist with problematic clients (unfortunately many people don’t pay on time unless they are threatened with “collections”)\nConsider using an invoice factoring company\n3. Unorganized books\nStaying organized is a huge factor in keeping good cash flow and knowing where your money is. Unorganized bookkeeping can and will hurt your company if it continues for too long. \nUnorganized books can result in late fees for invoices you owe, missing client payments that you haven’t received, unexpected costs, and more. It’s important to keep your finances organized from the start so these issues don’t build up and become a real problem.\nHow to solve it:\nIf you are not an organized person or you are too busy to keep organized records of your finances, consider hiring a bookkeeper to help you out. A bookkeeper can help you keep good records of your incoming and outgoing cash flow so issues can be addressed early and nipped in the bud. \n4. Spending too much\nSpending more money than you have coming the simplest definition of a cash flow problem. If you don’t have the money coming into your business, you shouldn’t be spending it. \nOf course, in most cases you do have to “spend money to make money,” so you need to find that balance and anticipate costs that are necessary so you can make good decisions about when it’s okay to spend money even if you don’t necessarily have incoming cash flow yet. \nHigh overhead expenses can become a huge problem here if you don’t have enough incoming cash flow because these are generally expenses that you have no matter what, like rent, utilities, phone and internet bills, and more. \nHow to solve it:\nThe best way to address this issue is to cut costs where possible and limit your spending. Here are a few ways you can do that:\nAudit your expenses to determine what you can cut. This may bring light to unnecessary payments or subscriptions that you have\nGet quotes from different companies for your phone and internet. Find more competitive rates\nAutomate tasks that you generally hire people to do \nGo paperless with your invoicing and record keeping\nGet lean on office supplies, luxuries in your business space, “expensed” meals, and wherever else makes sense \n5. Scaling too quickly\nTrying to grow your business at a too-rapid pace can hurt you in the long run. If you don’t have the incoming cash flow to support your growth, your business is likely to fail if you’re not smart about scaling. \nThink about this example: you land a huge client that will bring in a large payment and ongoing future business, but you need extra help to finish their project, which will still take six months. You hire three people to help with the project, but after the first month you don’t have enough money to keep up with their paychecks. Now you’re in trouble.\nHow to solve it:\nBe smart about scaling. Only take on projects and clients that you have the current cash flow to produce results. \nIf you are faced with an opportunity to scale more quickly, consider taking out a \nbusiness loan\n to help you address the cash flow issues that may arise. \n6. Not maintaining cash reserves\nEvery business should have an adequate amount of savings in store to address unexpected cash flow issues. Disasters occur, clients leave, and unprecedented events (like, say, a global pandemic) take place that we never could have predicted. \nIn these circumstances, the amount of cash reserves you have can make or break your business. Even with adequate sales forecasting, we can’t always predict the future. So, it’s important to make sure you have something to fall back on when unexpected events take place. \nHow to solve it:\nIt always a good idea to keep at least two months of operating expenses saved up so that even if you do have a slow sales month or disaster strikes, you are able to make payments to keep the lights on and pay your employees. \nIf the problem persists beyond your reserves, you may consider pulling out a \nbusiness loan\n and looking at ways to gain more business. 

6 common small business cash flow problems and how to solve them

In this article:\nHow small business funding can pay for itself\nHow you can get better rates on business capital\nWhy even large businesses still use business lending\nHow a small business loan can improve your business’s credit rating\nWhen economic, environmental, or medical disasters hit, small businesses are often hit hard. During the COVID-19 pandemic, millions of businesses signed up for Paycheck Protection Program (PPP) loans issued by the authority of the Small Business Administration (SBA) under the CARES Act, due to the devastating economic effects that resulted.\nPrevious disasters, recessions, and weather events have similarly driven local businesses to acquire emergency funding, but physical and economic disasters aren’t the only reason small businesses need a reliable and ready source of small business capital.\nLet’s go over a few reasons why you shouldn’t be afraid of taking out a small business loan, and then we’ll talk about some potential sources of funding.\nNote:\n this article is for informational purposes only. Consult your business attorney and/or financial counselor to make sure a business loan makes sense for you.\nMost businesses need funding, financing, emergency loans, or other capital during their lifecycles\nIf you are reluctant to take out a business loan because you think it means you’re somehow lesser than other businesses, get that thought out of your head right now. Many businesses can’t even get started without the help of a small business lender, especially if the owner doesn’t have a lot of support from family and friends for start-up costs. \nAdditionally, most, if not all, small businesses find themselves in need of business capital multiple times throughout their life-cycles, for expansion, improvement, new equipment, repairing damage from fire or flood or vandalism, hiring, paying down higher-rate loans, and many other reasons.\nEven huge, enterprise companies with lots of cash reserves are constantly borrowing funds to maintain cash flow, upgrade equipment, start new divisions, acquire other businesses, or for other financial purposes. \nSo, forget any supposed stigma related to borrowing money to save or improve or grow your business. That’s what the lender is there for.\nYou can theoretically make money by borrowing business capital at a lower rate\nOf course you should only borrow money if you can pay it back on time and in full. This is the first lesson in Business Loans 101. That said, there’s the possibility that you can actually make money by borrowing. \nLet’s say you see the potential for growing your business, offering a new service, or selling a new product that brings in significantly more profit, but you need a business loan to make it happen. You can secure business financing at a reasonable interest rate, invest that funding in your improvements in facilities or services or products, and potentially make enough profit that it covers the cost of the interest on the business loan… and then some.\nIf you theoretically borrowed at 7% and you earned 10% more than before, you basically got paid 3% for taking out the loan when all is said and done. And the improvements and increases in revenue don’t go away after you’ve paid the loan off.\nUsing small business financing can improve your business credit rating\nSimilarly to how your personal credit rating can be improved by maintaining a line of credit or other type of loan and paying regularly and on time, your business credit rating can be improved if you borrow funds and pay regular, on-time payments. This shows creditors and reporting agencies that you are a responsible business owner who pays your bills on time, and you can be trusted with larger loans. \nIt may seem contradictory that borrowing money (and paying as agreed) seems to show lenders that you don’t actually have any real \nneed\n to borrow money (and thus can be relied upon to pay it all back as agreed), but that’s how it works.\nRegular small business loan customers can ask for lower interest rates and other perks\nSimilarly to how an improved business credit rating can improve your chances of getting a better/bigger loan, once you’ve established a trusting relationship with your lender for a business loan, you can sometimes get better rates, lower fees, or other perks that are reserved for “elite” customers.\nSome lenders will offer 0% origination fees on your next loan, waive any prepayment penalties, lower your interest rates, and offer other perks that can save you a lot of money. But they usually only offer these benefits to current or former borrowers. So, you need to borrow money in order to save money (next time).

9 articles found in “Funding”

Guide to small business loans: How to apply, best types, and tips

6 common small business cash flow problems and how to solve them

Why you shouldn’t be afraid of small business loans or financing

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